The Tax Man: But hindsight is always clearer than foresight

Earlier this month, our local news media reminded us that it has been two years since the demise of Aloha Airlines and one of the dailies opined that with that loss went numerous well-paying jobs.

While the editorial piece admitted that it did not know how many of the approximately 1,900 former employees have found new employment, what they did note, anecdotally, is that those who did find new employment experienced a substantial decrease in pay. The editorial piece went on to bemoan that loss of the large local company that had provided abundant job opportunities that were well compensated. It also noted that the company had provided a valuable service to the community and competition in the local transportation market.

Although some argued that the company was a victim of bad management or poor operating practices, the truth was that the company was one of the early victims of the freeze that overcame the credit markets. When this observer suggested that the state should have stepped to the plate and provide temporary assistance to the company like it had to the Aloha Airline’s friendly competitor a decade earlier, some reader chided that, “two wrongs, don’t make a right.”

It wasn’t that the state should have “bailed out” the airline as much as it was to lend the airline the state’s balance sheet by guaranteeing its credit line. That would have cost taxpayers nothing unless that airline had gone out of business, a result that the state and community did not want to happen. But critics believed that the airline should either swim or sink on its own without knowing what ailed the company.

The result is the loss of one of the major interisland air carriers and the loss of 1,900 good paying jobs. And why should that matter to taxpayers other than being inconvenienced by the lack of transportation options to the Neighbor Islands? Well, as the recent editorial piece noted, those “good paying” jobs put money in the back pockets of those employees who not only went out and spent those dollars on goods and services, but they paid income taxes on those hard earned dollars and paid general excise taxes on all those purchases they made. 

Those dollars spent in the economy insured that the waiter at the local eatery had a job and sufficient hours to bring home a decent paycheck. They insured that there were jobs for sales clerks at the local department stores or carpenters were needed to build that new home or a public employee could work a full week.

Whether or not readers believe the state should have done something to keep Aloha Airlines from going out of business will continue to be debated. What the demise of Aloha Airlines and many other smaller businesses during the past year underscores is the importance of maintaining and supporting a vibrant and healthy economy. Would such assistance have helped Hawai‘i avoid the effects of the national and global recession? Probably not, but Hawai‘i probably would have weathered the downturn much better than it is.

The plight of Aloha Airlines is just emblematic of what ails Hawai‘i. Not only is the crush of Hawai‘i’s tax burden painful, but the maze of regulatory provisions with which every aspect of daily life must contend also makes it difficult to survive in Hawai‘i. This burden of taxes and regulations is no more apparent than in the current environment as families and businesses struggle to survive.

While lawmakers focus on balancing the budget they seem to realize that they have burned both ends of the candle as every time they rattle the can to find more money, they find that there is noting in the can to rattle. Taxpayers have been maxed out and any additional tax increase will merely drive families and businesses into the poor house. The evidence is all around as more and more families find themselves homeless, facing foreclosure, or just barely scraping by while businesses have shuttered their windows and storefronts remain boarded up.

While individual lawmakers bask in their efforts to protect the ‘aina or to protect families, or to protect education, the one thing that almost all lawmakers have forgotten is to protect is our state’s economy. And that is what is now striking home as state revenues shrivel, families leave the state and businesses are forced to close down. It is not that lawmakers were not given fair warning as Hawai‘i has gone through these cycles before.

What is a first this time is that Hawai‘i’s draconian economic climate has been overlaid with a national and global downturn that has underscored what a poor business climate Hawai‘i maintains. That, indeed, has to change if Hawai‘i and its people are to survive.

• Lowell Kalapa is president of the Tax Foundation of Hawai‘i, a private, nonprofit, non-partisan, educational organization established to research issues confronting governments in the area of public finance, taxation, and public administration. It is supported entirely by private contributions.