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8 Ways to Fire Up Hawaii's Economy

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4) Legalize gambling

One of the biggest untaxed economic activities in Hawaii is gambling. Its rivals include marijuana production and other illegal drugs and vices, but as an activity that teeters on the edge of respectability, it would be hard to trump gambling.

Tens of thousands of perfectly lawful Hawaii folks trek to Las Vegas regularly to play the slots, throw dice and have a good time. And while there is no legal gambling in Hawaii (other than “social” gambling among friends where there is no house), a flood of money goes down on every sporting event.

Since all this is already happening, and since the state is woefully short of cash, why not legalize some kind of gambling and enjoy the tax rewards that would follow?

Pro: It’s already happening. People enjoy it. It would generate a fresh flood of money (or at least divert money from the dark pockets of underground operators and Las Vegas) and it might add a spark to our struggling tourism industry. For instance, there are a lot of people in China who like to gamble; why not lure them to Hawaii?

“Over 700 million of our dollars go to Vegas every year,” says state Rep. Joseph Souki of Maui. “That’s money leaving Hawaii.”

Souki has sponsored a bill that proposes a constitutional amendment that, if approved, would allow gambling in Hawaii. Lawmakers would then decide what kind of gambling would make the most sense.

Con: For the most part, legal gambling could simply soak up dollars that are today spent on something else in Hawaii. There would be inescapable social costs (though perhaps not crime and mob activity, as some fear), but people who gamble excessively would become a burden on the taxpayer-supported social safety network. And wherever they exist, lotteries and other state-sponsored gambling are a “regressive tax,” because the poor are the biggest customers. –JB

5) Declare a tax holiday

Two years ago, in El Paso, Texas, Hawaii state Rep. Cindy Evans was surprised to find a packed shopping center in the middle of August. “We’re having our tax holiday and everybody is out buying,” a shopper told her.

During a tax holiday, certain products are exempt from state sales tax. Fourteen states have enacted an annual tax holiday before the school year — mostly for clothing, school supplies and computer equipment, but also for Energy Star products and even shotguns (nice one, South Carolina). The tax holiday may last a weekend or as long as a month.

Retailers like it because customers come out to shop and usually buy more than they came for. Politicians like it because it can advance public policy, as with the tax holiday on Energy Star products. Overall, the goal is to get people to spend money and stimulate the local economy right away.

The downsides, however, are myriad. “I think a tax holiday is regressive,” says Lowell L. Kalapa, president of the Tax Foundation of Hawaii. By its very nature, a tax holiday provides only temporary relief and deters long-term tax relief. Since a tax holiday creates a surge in customers much like the Christmas season, retailers need extra staff and this leads to a Catch-22, with many people unable to shop because they’re working.

Critics argue that tax holidays just delay would-be purchasers instead of attracting new business. According to a 1997 New York state Department of Taxation and Finance report on the state’s first clothing tax holiday, “much of the $174 million in ‘additional’ clothing sales during the exemption week were not new sales generated by the exemption but were sales that would normally have occurred during prior or later weeks in the sales tax quarter.”

Unlike our Island state, other states can attract consumers from neighboring states with a tax holiday. Free-market supporters also argue that tax holidays influence when and what gets purchased, essentially making the government a marketing agency.

This year, Rep. Evans introduced House Bill 82, exempting school supplies, computer equipment, clothing and books from the state general excise tax for five days in July. The bill passed second reading but stalled in committee. –JU


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