For economy, Hirono and Lingle have similar plans
| • | Business: Hirono, Lingle offer their views on Hawai'i's economy |
By Lynda Arakawa
Advertiser Capitol Bureau
For all the differences that Democrat Mazie Hirono and Republican Linda Lingle describe when they talk about how they would run Hawai'i, both candidates for governor are offering ideas to energize the economy that are strikingly similar — and, in some cases, identical.
The proposals by both candidates rely heavily on business incentives and tax cuts, but neither has been specific about how the state will make up the lost revenue.
Both say they expect their economic policies to attract new businesses and create jobs that will bring in more money to the state, but they can't estimate how much.
Neither candidate has won the unequivocal support of economists or business experts with their emphasis on tax incentives.
While there is general agreement that tax breaks can make Hawai'i attractive to some business investors, such incentives are seen mainly as a tool for marketing the state, rather than as an instrument of a new, far-reaching economic policy.
"I think these are pretty safe proposals in the sense that ... for the most part both candidates are trying to position themselves to conventional wisdom in Hawai'i," said Christopher Grandy, an associate professor of public administration at the University of Hawai'i. "Sometimes, in my view, that wisdom is right on, and sometimes that wisdom is, well, not so wise."
Hirono and Lingle both oppose raising taxes. They both talk about the importance of diversifying the economy beyond tourism, while at the same time giving even more support to tourism. They both want to aggressively market existing tax credits for high technology. They both support a $75 million tax credit for an aquarium project at the Ko Olina resort on O'ahu.
Lingle wants tax incentives for industries like entertainment, biotechnology and healthcare. Hirono's plan mentions tax incentives for businesses creating high-quality and distinctive products unique to Hawai'i.
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Some economists are skeptical about tax incentives for specific industries or companies and say they tend to skew economic activity without letting the market dictate its own direction. Some also say such incentives are usually a waste of government resources and question why government should favor certain industries or companies over others.
Democrat Mazie Hirono proposes tax incentives for businesses creating high-quality and distinctive products unique to Hawai'i.
Republican Linda Lingle wants tax incentives for industries like entertainment, biotechnology and healthcare.
"In my view, if you look at some of the Lingle proposals and some of the Hirono proposals, they are pretty much the same in that they are both trying to get in there and target a few specific industries: Let's give tax breaks to a favored industry or a favored firm and that will solve our problems," Grandy said. "And I think that perception is mistaken. It's disturbing to me that both of our major party candidates take that view. They basically agree that that's a reasonable approach, as far as I can tell."
Lawrence Boyd, labor economist at the Center for Labor Education and Research at the University of Hawai'i-West O'ahu, said he is also hesitant about tax incentives.
"There's not enough leeway in any state budget to give enough to an industry to allow it to overcome any other problem it might have," Boyd said. "And people in government are not as good as the private sector to pick winners."
Both Hirono and Lingle have insisted that tax incentives will stimulate job growth and generate more tax revenue. They also say they have talked to business owners who are interested in investing here because of tax incentives.
Hirono said government will not be "picking winners" on its own because she will rely on input from a group of representatives from the private sector, labor and others in figuring out which industries are promising and deserving of tax incentives.
But she conceded that tax incentives are "not the answer, of course, to everything. We don't just put all our eggs in one basket."
Said Lingle: "I think what's more important than economists' opinions on tax credits is what is the opinion of investors on tax credits because they are the ones who create jobs. ... I don't completely disagree with (the economists') concerns, but I would say that the reason the tax credits by definition favor one job over another is because we are trying to create higher paying jobs, more professional jobs. And to do that you do need to offer incentives."
On the controversial issue of a proposed $75 million tax credit to developers who want to build an aquarium and marine mammal research facility at the Ko Olina resort, Hirono and Lingle say such a project would help infuse jobs in an area of O'ahu that badly needs them.
Most local economists are not fans of the Ko Olina tax credit. Some, like Grandy, question why the state would want to put money into a project that isn't even able to attract private investors.
Said University of Hawai'i economics professor James Mak: "I have not run into a single economist that says that is good tax policy."
Hirono has said the cost of her tax cuts and other business initiatives would be covered by expanding the economy.
Lingle said in addition to an increase in revenue growth, she will be able to balance the state budget by cutting government waste and duplication and obtaining more federal grants.
Economists and other business experts have said state government can only do so much to improve the economy, which is largely influenced by external forces. But candidates know that voters generally don't want to hear that.
"The government could make sure that we are not our own worst enemies," Mak said. "That we make sure we have level playing fields and that the rules are clear. Beyond that there's not a lot that government can do. But at the same time it's not a popular message when you tell voters, 'I'm running for governor, but I can't promise you that I'll do a lot.' But maybe people should understand that."
Beyond the issue of expanding the economy is the more subjective question of how Hawai'i treats business. Lowell Kalapa of the Tax Foundation of Hawai'i said the perception of the business climate in Hawai'i is that it is unfriendly to business, and that a successful enterprise will quickly come under attack by government.
"The way we do business in this state and how we treat business and how we treat investors is the issue here," he said. As an example, he cited the passage this year of legislation that could cap the wholesale and retail price of gasoline.
Hirono supports the gas cap law. Lingle opposes it.
Here are some of the specifics of the economic plans described by the candidates:
The Hirono economic plan
• They agree on ... • Tax incentives for various industries such as high technology • Supporting a $75 million tax credit for Ko Olina development • Diversifying the economy and the visitor industry • Opposing tax increases • Opposing gambling • Mazie Hirono proposes ... • Creation of an Economic Expansion Council made up of representatives from government, business, labor, the military and non-profit organizations • Appointing a small-business advocate in the governor's office • Creating a technology advisory group to identify high-tech trends • Creating an "aloha team" to identify companies that should be encouraged to expand here • Providing tax incentives to farms that offer high-quality or distinctive products unique to Hawai'i • Working with UH to create an incentive and reward program to encourage research • Linda Lingle proposes ... • Creating a cabinet-level position to focus on the tourism industry • Eliminating the general excise tax on medical care/products • Reinstituting the food tax credit • Cutting unnecessary regulations and consolidating the state/county permit system into a "one-stop shop" • Providing tax incentives and other government support to attract investment in industries like entertainment, biotechnology and healthcare • Supporting UH research by helping to get federal grants • Links:
Hirono said in her first 100 days in office she would introduce a bill to reduce the capital gains tax by up to 50 percent. Cutting the tax is typically a Republican favorite that has been repeatedly rejected by the state Legislature. Hirono said reducing the capital gains tax would allow individuals and corporations to "keep more of their money and keep that money circulating in our economy."
Where the candidates stand on the economy
The state Tax Department said it would be too complicated to calculate how much reducing the capital gains tax would cost the state because the tax is subject to the volatility of the stock market and the economy. Hirono said after talking with tax officials she estimated cutting the tax in half would amount to about $16 million.
Mak said reducing the capital gains tax is "trivial."
"It's not much relief," he said. "I suspect it doesn't affect a lot of people in any significant way."
But Hirono said: "It would certainly help the people who get to have their taxes cut in half. But I think it also sends a message that we want to help individuals and the businesses in this state."
Economists had mixed opinions about Hirono's proposal to create an "economic expansion council" made up of representatives from government, business, labor and others to come up with ideas on how to expand the local economy.
Some have said the idea is reminiscent of the Economic Revitalization Task Force created by Gov. Ben Cayetano in 1997 and were skeptical that another group is necessary or useful.
"That's fluff," said Kalapa. "I can create a task force. There have been many task forces. I think there are already concrete proposals out there that make sense in enhancing the economy."
But Hirono said her group will be more productive because it will be an ongoing effort, rather than temporary.
"The ERTF was a noble effort to make major changes to the economy, basically by getting people together over a two-day period," she said. "The Economic Expansion Council is an ongoing group for the first time ever that will work right with the governor and the lieutenant governor to focus on good paying jobs, diversifying our economy."
Grandy said enough time has passed since the 1997 task force to merit the formation of another group.
"The world changes, the economy changes," he said. "Isn't it a good idea to have the input of experts in the field on an ongoing basis, or at least every so often?"
Hirono also wants to appoint a small business advocate within the governor's office to give such businesses a larger voice in policies and regulations.
Gov. Ben Cayetano said he didn't think such an advocate was needed.
"Either the administration is pro-small business or it's not," he said. "You don't need an advocate for that. Already, they are among the most outspoken of all people, and we've tried to accommodate them."
Hirono disagreed. "I've been talking with the small business community and they all think that this would be a terrific idea,' she said. "They'd like to have somebody within the governor's office who has immediate access to the governor, who will be accessible to them. And, of course, I will be accessible to them as governor, too."
Hirono also wants to create a technology advisory group to identify high-tech trends and an "aloha team" to identify companies that should be lured here.
Some economists said the state Department of Business, Economic Development and Tourism is already doing some of that, but a DBEDT official said Hirono's concepts appear to be a different strategy. Hirono said her groups will be private-sector driven and that "doing it at the level of the governor's office gives it that much more punch."
The University of Hawai'i must also become an economic catalyst for the state, Hirono said. She stressed the importance of UH research as a way of generating revenue and creating jobs, and said she will work with the university to develop a competitive incentives and rewards system to encourage scientific advancements.
Mak said simply getting a grant is a powerful incentive for research.
"What kind of incentives can the governor of the state of Hawai'i provide?" Mak said. "One is that you should provide a flexible salary schedule that will award people for meritorious performance. And you have to make sure you have a salary structure that will attract people to come to Hawai'i for cutting edge research."
Hirono said she also believes that competitive salaries are key to boosting UH research.
"Any kind of incentives that reward their entrepreneurial activities," she said. "It's identifying all those ways to attract and retain those kinds of people."
The Lingle economic plan
Lingle said she would create a cabinet-level position in her administration to oversee the tourism industry. That position would primarily serve as a liaison between state departments "so that they understand that everything they do impacts on tourism and the things that the visitor industry does impacts on government," she said.
"It's important to have someone who is always sitting at the highest level of government make sure that the actions we're taking are taking into consideration our biggest industry."
Lingle has also proposed working with county government to cut unnecessary regulations and consolidate the permit system into a "one-stop shop."
"I think the general idea there is a good one," Grandy said. "That constant evaluation, I think, should be a process both at the state and the local level."
Said Mak: "Everybody's in favor of that. It's apple pie stuff."
Economists, however, didn't favor Lingle's idea to eliminate the 4 percent general excise tax on medical care and to reinstitute the food tax credit. Lingle has argued the tax on medical care and food hurts those who are on fixed incomes the most.
Cayetano's administration said ending the general excise tax on medical care would mean the state would lose about $82 million a year in revenue. Lingle said it would be inappropriate to decide on a specific food tax credit amount before taking office and reviewing the state's finances. But based on the $27-per-person food tax credit in 1998, the cost totaled $25.4 million annually.
Grandy said eliminating the tax on medical care would erode the tax base and put pressure to raise the tax rate. Both he and Mak also said reinstituting the food tax credit won't be as effective in helping low-income residents because everyone would be eligible for it. A better way, they said, could be to increase the low-income tax credit.
Kalapa, of the Tax Foundation, has also argued against eliminating the general excise tax on medical care, food and rent — a proposal long advocated by Republicans. He has said singling out one type of business for a tax preference is discriminatory and questioned how the state would deal with the revenue loss.
Lingle said increasing the low-income tax credit is an idea she is willing to consider. She also said she would look at cutting the general excise tax on medical care in phases rather than eliminating the entire tax at once.
Lingle said she would aggressively support UH research, partly by using her federal contacts and connection with the Republican Bush administration to help get federal grants.
Mak said he didn't see how a governor could help because it's the researchers who are responsible for getting grants. One way a governor could help, he said, is if a federal grant would only be awarded if the state also puts up matching money.
"The governor can do anything he wants to, but in the end they're giving grants to people who can do cutting-edge research," he said. "Unless you have good people on board, they are not going to be able to get any federal grants no matter what you do."
Lingle said she believes in using federal contacts to get grants as well as increasing salaries to reward university faculty and attract new researchers.
"I think there are great opportunities for a governor and for our state generally to take much more advantage of dollars that would be available at the federal level," she said. "Sometimes it's just by us making the pitch to them. But we are so unique I can see lots of opportunities that are being missed."
Advertiser Capitol Bureau Chief Kevin Dayton contributed to this report. Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or at 525-8070.
