More tax revenues for state unlikely to grow economy

We have reached an important milestone in Hawaii economic history.

Much like the perpetual motion machine, cold fusion and turning lead into gold, we have apparently discovered economic alchemy.

We are turning historic tax increases into glowing increases in the state economy.

The state’s semi-independent Council on Revenues this week recalculated the state’s growth in tax collections. The state is projected to now take in 14.5 percent more money during the current fiscal year.

This is a change; the earlier prediction was an increase of 11 percent.

It used to be that when the Council on Revenues raised its estimates, it meant the economy was doing better. When the estimates went down, it was because the economy was tanking.

This time, state Capitol denizens were already having a hard time figuring out how we were going run up the treasury by 11 percent. Now to see it go to 14.5 percent is a jump that should send the budget committees skipping across the mosaic atrium.

It is, as we always know, not that simple. Hawaii is not getting more money because the economy is blossoming, because people are flocking to our shores, or because investors have decided that Honolulu should be the nation’s hedge fund center.

Hawaii’s revenue is growing because the state is hitting you up for more money. That’s right, the state treasury is growing because the state took it from you.

Of course, this includes all the companies that had previously enjoyed general excise tax exemptions, increases in rental car taxes, and delays in state tax deductions and personal exemptions. The Legislature calculated that the new tax increases should net the state an extra $600 million over two years.The Council on Revenues was more conservative, saying the state will pick up maybe $400 million.

Lowell Kalapa, Hawaii Tax Foundation president, pointed out after the meeting that the council ran its revenue projections twice, once without the tax increase and once with the tax hike. By doing that, the actual revenue projection was not good: the council would have lowered the state’s rate of growth from 11 percent to around 6 or 7 percent.

So in real terms, neither the state’s tax collections nor the supporting economy is getting better. It is getting worse.

“This recovery is really soft,” said Kalapa.

There are other doubters in the sudden tax windfall.

“I can find no example in the history of any state or country that got itself out of a deficit by raising taxes. I hear a steady drumbeat from small businesses that they are still struggling,” said GOP Sen. Sam Slom.

Isn’t there some way, I asked, that if the state is spending more money for needed services, it will actually help business? For instance, if there were more agriculture inspectors, more people to process permits?

Slom budged slightly, saying that if the state was spending more to build more bridges, roads and “finally modernize the airports, it would have a positive result.

“But, I see people wanting social welfare programs to continue, not infrastructure improvements,” Slom said.

Unless the state’s taxpayers come with elastic wallets, growing the economy by adding new taxes probably won’t work for long.

To paraphrase the satirist and cartoonist Walt Kelly and his creation, Pogo: “We have met the economic stimulus, and it is us.”