Economists stay
bullish on HawaiiAnalysts say that tax cuts
are keeping the state from
cashing in on a flush economy
Local economists see Hawaii's economy as one of the strongest in the nation and are predicting the good news to continue throughout 2004.
Banking, real estate and University of Hawaii economists said the Hawaii economy is structurally sound and expected to grow. They made their predictions yesterday during a legislative hearing at the state Capitol.
The upbeat theme, however, did not carry over to state government revenues because a round of tax cuts has hampered the state's ability to share in the new wealth.
"Despite the strong growth in the local economy, tax revenues are not performing up to par," Paul Brewbaker, Bank of Hawaii senior vice president and chief economist, told the House and Senate money committees.
He noted that the state has seen declines in corporate net income tax revenues and two categories of income taxes. The result, Brewbaker said, "uncoupled the revenue stream from the economy."
Sen. Brian Taniguchi, Senate Ways and Means Committee chairman, acknowledged that "tax collections and the revenue side are not matching up.
One way for the state to get more of the new wealth would be to increase taxes or cancel tax cuts, but Taniguchi (D, Moiliili-Manoa) wasn't ready to raise taxes.
The best time to raise taxes is when the economy is doing well, but no one wants to do it then, Taniguchi said, and when the economy is lagging, people want more government services, but it is not considered a good time to raise taxes.
University of Hawaii economist Carl Bonham sees Hawaii's economy "on a steady expansion path."
"There is a palpable sense of optimism among households and businesses alike," Bonham said.
The state's economy will benefit from a decade of military housing construction, Bonham predicted.
Brewbaker reported that Hawaii is growing at a faster rate than most of the country.
"Measured in terms of job growth, unemployment rates or real personal income growth, Hawaii ranked among the top five or top 10 states," Brewbaker said.
The increased growth tracks increased collections in general excise tax revenues, Brewbaker noted, but said other state tax cuts have hurt overall tax collections.
Michael Sklarz, chairman of the Council on Revenues, which sets the official state tax revenue prediction, said the economic outlook is positive.
Figures for the first five months of the fiscal year show that Hawaii has taken in 1 percent more than last year, a total of $1.3 billion.
Last year, for instance, while the withholding tax on local wages actually increased, income tax payments decreased $31.6 million because of state income tax cuts, Sklarz said.
Net corporate income declined by 81 percent, to $8.3 million from $45.5 million, Sklarz added.
The council estimated last month that state revenues will grow 5.2 percent.