Mixed reviews
for small biz policies

The impact of what the state
considers its best move -- a
personal income tax cut
-- is questioned

Special Section: Small Business Smarts

By Russ Lynch
Star-Bulletin

The state government says it has taken significant steps in recent years to ease the burden for Hawaii's small businesses. But those steps get mixed reviews from some voices representing local entrepreneurs.

The Cayetano administration says it isn't slowing down in its efforts to remove more bottlenecks and add more benefits to get business moving.

Janis Togashi, communications director of the state Department of Business, Economic Development & Tourism, produced a list of changes after being asked what the state has done for small business. Atop that list was a lowering of the personal income tax rate.

The administration believes the lower rate, which went into effect at the start of this year, helps small businesses because most are sole proprietorships whose owners pay their income taxes as personal taxes.

While nobody wants to knock a tax cut, two small-business representatives question the impact on entrepreneurs. If you're not making any money, they say, you're not paying any income taxes anyway.

"It's not the individual help we need. We need the ability to plowmoney back into our businesses," said Beverly Harbin, a spokeswoman for the Small Business Economic Revival, a new coalition of business-advocacy groups.

The tax break small business needs most is cutting excise taxes on service work done for businesses, she said.

Bette Tatum, state director of the National Federation of Independent Business, agreed, saying entrepreneurs worry more about the general excise tax than they do about any other tax.

The GET is paid off the top. After they pay the GET and the various other taxes and costs of doing business, business owners don't have any income left to tax, said Tatum, a longtime lobbyist for small business.

"We don't ever knock any reduction of tax of any kind," she said, but NFIB feels there are better ways to help small business.

Another advocate praises the income tax cut.

Tim Lyons, executive vice president of the Hawaii Business League, said the personal-tax break can help people who run Subchapter S small-business corporations, because they pay themselves a salary as well as a share of whatever income the business is able to make.

"Even though the company may not have made money, the president paid himself. On the personal side, he got some benefit," Lyons said. "It's still a wonderful way to help small business."

The DBEDT's Togashi also cited the state's moratorium on employer contributions to the labor training fund, lower workers' compensation insurance rates, a simplified permit application process, an immigrant investor program, and steps to make more venture capital available.

The employee training fund is a tax on employers to pay for job training for displaced workers.

The fund is already back, since the 18-month moratorium expired at the end of 1997, Harbin and Tatum noted.

Both would like to see the charge against business go away. Tatum said it has been unanimously opposed by small businesses. There is a bill before the Legislature seeking to extend the moratorium.

As for workers' compensation, insurance premiums are indeed down, the small-business representatives said, but they worry that they will come back up again.

"One of the big reasons it went down was because of a lowering of medical fees," Tatum said. Now the medical service providers are complaining that their fees are too low, she said.

The process in which various small businesses get the state permits they need has been simplified, and that's a definite plus, Tatum acknowledged.

For this, the state, the counties and federal agencies work together. The process was used successfully in 1996 to speed up the laying of a second fiber-optic telecommunications cable around the islands. It has also been used to make it easier for high-technology businesses to set up in Hawaii.

Tatum said that, in general, the state's attitude toward business has improved, but there is still more to be done.

"I think the rhetoric has maybe changed. The problem is, we don't see results. We're going in fighting for results-oriented programs."

"They're trying," she said of the Cayetano administration. "A lot of their problem is in the Legislature," which doesn't act on some of the pro-business bills that come before it, Tatum said.

Lyons said Cayetano has been getting more knowledgeable about small business and that the small-business community hopes to see a repeat of what happened with his predecessors, Gov. John Waihee and Gov. George Ariyoshi.

In their last terms, both became more pro-business, "much more conservative," Lyons said.

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Special Section: Small Business Smarts