TAXWatch: The Giant Sucking Sound

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You may remember back in the 1992 U.S. Presidential campaign, independent businessman and candidate Ross Perot argued, on live TV:  “We have got to stop sending jobs overseas. It’s pretty simple: If … you can move your factory South of the border, pay a dollar an hour for labor, … there will be a giant sucking sound going south.”

We are going to have a similar problem, and soon.

In 2016, Pacific Business News observed:  “Over six years, from 2010 to 2016, we lost 30,000 more people than moved here from other states.  And the flight rate has been increasing … 2016’s outmigration rate was 10 times higher than 2010’s.”

On June 1, University of Hawaii Economic Research Organization’s Executive Director Carl Bonham told lawmakers that we’re going to lose another 30,000 people in just two years.  A more pessimistic scenario assumes we are going to lose that 30,000 people in ONE year.

Schlurrrrp!

Why is this happening?  “Because tourism is such a dominant piece of the economy, many other state economies and county economies will recover, much more rapidly, and the job opportunities will simply not exist here that will exist in the rest of the country,” he said. “Think about at the end of this year and into January when our extended unemployment benefits have expired; if you don’t have family ties in Hawaii, and you were working in tourism here and your unemployment benefits run out, there’s absolutely nothing to keep you here.”

So how are our lawmakers reacting to this?

Our public worker unions seem to have zero sympathy for the plight of our taxpayers.  HSTA’s Corey Rosenlee argued last month in Civil Beat that demands for “shared sacrifice” because of budget shortfalls should be rejected.  UPW’s Dayton Nakanelua wrote that his union “must vigorously and respectfully oppose however, any plan to reduce public employee pay at any level, amount or through furlough.”  HGEA’s Randy Perreira wrote a similar letter opposing a furlough (or pay cut) affecting his union members.

So, where is the money for public workers going to come from?  

We could borrow it, but we’d eventually have to pay any loan back with interest.  

We could turn over rocks hoping to uncover moneys that various departments have squirreled away – but that will last only so long.  

Could we get lots of money through “revenue enhancement,” otherwise known as raising taxes?  If we try that, we can certainly expect the giant sucking sound to get louder and deeper.  In addition, the taxpayers who are left might not be able to pony up increased taxes because they simply aren’t able to afford it in addition to rent, utilities, and other costs of doing business.

If anything, we need to make it easier to do business.  If we in the private sector are allowed to do business and with fewer nonessential restraints, we don’t mind sharing some of the profits with government.

We also need to think seriously about cutting costs.  Just as there are obscure special funds we are currently finding, there are obscure programs and services that no longer can be justified.  These need to get out of the way so the tax dollars the government does get can be more efficiently utilized.

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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.