TAXWatch: It’s the Economy, Stupid

“It’s the Economy, Stupid” is a catchphrase made famous by Bill Clinton when he ran for president in 1992 and won. 

Recently, we have been getting lots of news about our economy here in the islands, and none of it has been good.

 The national site WalletHub has pegged our economy 48th out of 51 (including DC).  We eked out a victory over only Mississippi, Louisiana, and Alaska. 

The University of Hawaii’s economics organization, UHERO, also came out with a somber assessment.  “Over the past year,” it said, “there has been a broad slowing of growth across the four counties. To varying degrees, each has seen a falloff in tourism activity and a slowing of employment growth in a number of sectors.”

The Department of Business, Economic Development and Tourism publishes a quarterly forecast.  The most recent one for Q2 2019 predicts modest growth in the gross domestic product for the state, with annual increases a little less than 4%. 

In the meantime, our county governments are passing record-busting budgets.  

The City and County of Honolulu recently passed a budget 8.8% higher than last year, which included tax hikes on hotel and resort properties and in non-owner occupied “Residential A.”  The Mayor’s chief of staff was quoted as saying, “The additional revenue will be used to remedy Honolulu’s unfunded healthcare and retirement liabilities, and to prepare us for future rail operations and maintenance.”  Prepare us?  Uh-oh, it looks like we have more revenue woes to come.

Maui County passed the largest budget in county history, including tax increases in almost all property classifications including residential.  The budget proposes to spend $823.5 million, 8.6% more than fiscal 2019.  “The council opted for economic investment in Maui County, rather than austerity,” the council chair stated in a news release.  That’s easy to say when the money being invested isn’t theirs.

Kauai adopted a $278 million budget, a 7.75% increase over the prior year.  “With a new Mayor and Administration onboard, the Council carefully set out to provide the Administration with the tools needed to innovatively improve systems, services, and functions Countywide,” the County Council said.  Now someone needs to use the tools.

And the Hawaii County Council passed a $585 million budget, which is more than 13% over last year, adding 95 positions.  “We’re demonstrating to our constituency and taxpayers that we’re watching the bottom line,” one council member is quoted as saying.  Maybe someone needs new glasses.

So, let’s now ask the question.  If the economy isn’t growing as much as the rate government is spending, what’s going to happen?

There is an engine in our society which we call the economy.  Businesses provide goods and services to people and other businesses.   Those businesses can’t do it alone, so they employ people.  The businesses themselves need goods and services to perform, and their employees need meals, shelter, and other goods and services.  Our tax system takes a piece of each of almost all these financial transactions.  So, if our economic engine is running and spinning, our government is taking in money.  That taking acts as a brake on the engine, but if the engine is running fast enough it won’t slow down so much.  But what happens if the engine is just sputtering along and government demands more anyway through tax rate hikes? 

Lawmakers, if you don’t know the answer to that question, just listen to a few of your constituents who were forced to dip into savings, sell household goods or the family home, or even leave our sunny shores for greener pastures—or at least pastures where the taxes are lower.  If it gets bad enough for them, they might exact retribution at the ballot box.  Like how George H.W. Bush lost to Bill Clinton because of “the economy, stupid.”

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About Tom Yamachika

Tom Yamachika
Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.

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