Rooted in Reason: Nurturing the Seeds of Liberty

The Lingle Vetoes: Part 2 by grassroothawaii
July 12, 2010, 10:37 am
Filed under: Uncategorized

By David Jaress

While a great deal of attention has been drawn to Governor Lingle’s veto of House Bill 444, many of the governor’s other vetoes have gone largely unnoticed by the public.  Indeed, at a time of financial difficulty for many of Hawaii’s families, many of Governor Lingle’s 32 vetoes have managed to stem tax increases and costs that would have further burdened local residents and businesses.  While numerous bills increasing taxes and unnecessary regulation were vetoed, some of the more notable were:

HB 2421

Also known as the “Barrel Tax” bill, this piece of legislation would have increased the so-called Environmental Response Tax on a barrel of petroleum from 5¢ to $1.05, raising the cost of a gallon of gas by around 2¢.  With Hawaii residents already paying some of the highest gas and electricity rates in the nation, raising petroleum taxes even higher would only have hurt island residents more.  It’s also important to note that such excise taxes are inherently regressive in nature: while that extra 25¢ or so for a tank of gas may not mean much to wealthy individuals, it places a disproportionate burden on low-income families for whom the tax represents a larger share of their disposable income.

HB 1907

House Bill 1907 would have drastically affected businesses, individuals, and organizations throughout the islands, particularly the islands’ numerous non-profit groups.  Essentially, the bill would have capped itemized deductions on an individual’s state income taxes at $25,000, removing the tax breaks on any previously exempt spending above that limit.  This would have been particularly disastrous for the numerous non-profits (including the Grassroot Institute) who rely on donations in order to address Hawaii’s numerous social and economic issues.  Had HB 1907 been implemented, a simple mortgage alone could have taken the entirety of a business’s possible deductions.  Charitable organizations would likely have seen their available funds plummet, no doubt leaving a considerable amount of their work to be picked up by state services.

SB 2840

Marketed as a “job creation” bill, SB 2840 would have mandated that at least 80% of workers on given construction project be Hawaii residents.  Proposed by Sen. Bunda, this bill would supposedly have “leveled the playing field” for Hawaii construction workers and boosted the state economy by paying wages to workers who would spend more of their money within the islands.

Economics, however, teaches us that such measures would in fact hurt both Hawaii’s construction industry and overall economy more than help.  Not only would complying with such additional regulations create an incredible bureaucratic headache for both private and public contractors, but it would also dramatically increase the cost of construction in Hawaii (after all, if businesses are in fact opting to hire mainland workers, it would probably be because they are less expensive).  Not only would this mean less money saved by state and private contractors, but higher costs for labor would eventually translate into fewer construction projects being affordable, and thus fewer job opportunities open to island workers involved in all the stages of a construction project.  While it may be tempting to try to force job prospects for Hawaii residents to improve, the simple truth is that arbitrary mandates such as SB 2840 generally end up hurting more than helping.

Like much of the world, Hawaii is facing a difficult business environment.  While the city and state struggle to cover their funding shortfalls, Hawaii residents as well are tightening their belts and rushing to find work.  As we look to find solutions to these hard economic times, however, the state should take care not to increase the already significant tax burdens on Hawaii’s businesses and working poor.  Fortunately for us, Gov. Lingle has so far seemed to keep this in mind.


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