TAXWatch: The Parable of the Two Horses!

The Hawaii State Tax Watch Doggie at long last has made his son put down his smartphone.

Son:  Dad, I’m a little old for bedtime stories.

Doggie:  Hush and listen!  And don’t fall asleep on me, darn it!

Two horses that were sent to different towns, Harburg and Tarburg.  The folks in the different towns needed the horse to pull a wagon to the other town and back.

In Harburg, they were worried about whether the horse would go in the right direction.  So they put up obstacles and pitfalls in various places along the way to Tarburg. Some of the pitfalls were easy to see and were in an area marked as being not the way to go.  Some of the pitfalls were harder to see and were in an area clear of obstacles. In Tarburg, they put up some signs but mostly let the horse figure out the best way to reach Harburg.

In Harburg, they were a little worried about whether the horse would eat too much food.  So they took away food from the horse. They didn’t do that in Tarburg.

In both Harburg and Tarburg, they rewarded their horse when it did something good.  They gave it some carrots and apples. But in Harburg they worried about how much the carrots and apples cost, so they stopped giving their horse treats even though it did lots of good things.

In both Harburg and Tarburg they loaded the horse’s wagon with items that were going to the other town.  But in Harburg they were worried that there weren’t enough people making a living off the horse’s work, so they made a couple of extra people ride on the wagon that the horse was pulling.

So which horse do you think finished pulling the wagon first?

Son:  That’s lame.  The Tarburg horse would win.

Doggie:  The horse represents our businesses.  Our government needs money to run, and tax revenue comes from business profits.  So, the horse pulling the wagon is providing the resources necessary for government.  And for the rest of society, for that matter.

Son:  Okay, the obstacles must be regulations, but what are the pitfalls?

Doggie:  Penalties, especially retroactive ones.  If the rules are communicated clearly, penalties are fine.  Those are the pitfalls in the marked areas. Other times, if it’s hard to see what conduct is expected of a business, fines and penalties are more difficult to justify.

Son:  How does Harburg starve their horse?

Doggie:  By taxing it, and then by maintaining an environment where it is hard to find workers.  Workers are one kind of food for a business. If the government is hard on workers, they will move to another place and they won’t be available to work.

Son:  The carrots and apples are incentives and subsidies?

Doggie:  Right you are.  What about the extra people on the cart?

Son:  Unions?

Doggie:  Not quite.  They can be any additional requirements that are imposed on employers.  Minimum wage laws, mandatory benefits, compulsory nap breaks, …

Son:  Nap breaks?  You’re kidding me.

Doggie:  There was indeed a bill to mandate nap breaks some time ago.  It didn’t pass.

Son:  Dad – I see what you’re getting at, but your delivery needs work.  Don’t quit your day job, okay?

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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.