As the legislative session approaches, there is a growing concern among taxpayers, families and businesses that lawmakers will make a bid to increase taxes yet again.
Bolstered by the state Tax Review Commission’s report outlining possible looming shortfalls resulting from unfunded liabilities of the public employees’ pension and health funds, lawmakers may see a need, or a good excuse, to raise taxes. A majority of House members have pledged not to raise the general excise tax, but that doesn’t rule out increasing the net income tax or altering provisions of the income tax to generate more money, such as imposing limits on itemized deductions or taxing currently exempt income.
While the unfunded pension and health care fund liabilities are problems that will not simply disappear, they should not be addressed by merely raising taxes. Those unfunded liabilities are a result of lawmakers’ spending on new programs and services, instead of funding the pension and health funds. These programs and services made some constituents happy, but funding them created the problem lawmakers now face. They must now find a way to redirect spending on programs and services to pay for the unfunded liabilities.
Reducing the amount of spending on these programs and services will upset some constituents, and they may lobby to restore funding. But lawmakers must recognize there is a bottom to the taxpayer bucket. As some observers fear a substantial federal tax increase may cripple the economy, an increase in taxes for Hawaii’s economy would also be devastating.
There are rumblings by constituents for more services and programs that will challenge lawmakers to hold the line. Worthy as early childhood education is in preparing Hawaii’s children for the future, where will the money come from to pay for this? Will lawmakers reduce spending on other programs to pay for it? Will advocates of early childhood education support cuts to other programs and services? Will they support increasing taxes?
At the same time, lawmakers will hear from state employees claiming spending cuts made in response to the economic downturn left departments short-staffed and unable to get work done. Couple that with wage demands of the public employee unions and demands to increase spending for the homeless and the poor, and lawmakers will be hard-pressed to find ways to contain the size of government.
Federal lawmakers must decide whether to raise taxes or cut programs related to education, welfare and defense. As long as federal or state policymakers continue to mask the true cost of operating government, the demands for more services will continue. In Hawaii, recent tax increases have avoided imposing additional costs directly on the majority of taxpayers by raising taxes indirectly through suspension of general excise tax exemptions, imposing higher income tax rates on wealthier taxpayers and exporting the tax burden to visitors by raising the hotel room tax or taxing commodities used by visitors, such as the tax on rental cars.
State lawmakers have pushed nearly every tax or fee to the limit in the past couple of years. One must wonder where lawmakers will go to keep feeding state programs and services, as well as begin to address the unfunded liabilities of the pension and health system.
Is there anyone in the state Legislature willing to stand up for the taxpayer and call for an end to this unbridled spending spree? Are there lawmakers willing to say “no” to calls for more and more spending?
The heist of the taxpayer is about to begin, will you be ready?
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.
