Hawaii Taxing Internet Commerce

Tax or Cut?

The Hawaii state legislature is considering taxing internet commerce. This is just another example of state politicians addressing the wrong end of the problem.  In the private sector, management and labor would have to consider a combination of factors to deal with hard times. They might consider layoffs, reduction in hours, pay cuts, termination of matching 401K contributions, termination of defined benefit pension plans and reduction or elimination of health care benefits.

Your government looks at things a bit differently. They look at the other side of the equation and desperately search for ways to raise revenue through taxes and fees. Virtually every economist says raising taxes in an economic downturn is exactly what not to do. So, why is your legislature so intent on putting more of a burden on the residents of Hawaii?

To answer that question we must look at labor organizations and the conditions under which their power is gained or lost. A union’s power is directly related to the competitive environment of the employer.  A monopoly or oligopoly  conveys much more power to the unions than they would enjoy in a highly competitive market. The airline industry is a good example. Prior to 1978, when airlines were regulated, the unions were powerful. After deregulation, under the unrestricted entry of new carriers and unbridled competition, unions were forced into a concessionary mode that continues today.

Your government is a monopoly. Therefore, the public employee unions have enormous power. In Hawaii that power is further amplified. This expanded power comes from four factors:

First, According to FactCheck.org, Hawaii is tied with West Virginia as having the  lowest voter turnout in the nation. Only half of our eligible voters take to the polls.

Second: Government workers  in Hawaii constitute a significant percentage of the total work force. Hawaii ranks near the top in percentage of workers who work for the government.

Third: A higher percentage of those workers actually vote when compared to the general population.

Fourth: These workers tend to vote in a block due to union influence.

The result is that the public employees essentially put the government officials in office. Thus, the politicians are loath to adopt any cost saving measures that they would have to defend in the next election.

State and local government employee numbers nationwide have grown 40% faster than the general population. This would indicate that the power of public employee unions will only increase.

Unionized worker’s pay and benefits come from negotiated contracts. Private sector labor contracts are negotiated in an adversarial environment. Private sector union contracts are negotiated with the financial health and competitive position of the employers as factors. Public worker unions negotiate in an atmosphere in which the parties understand that the union may chose to fire the employers (through the election process). These are really not negotiations at all. They are more like the mating dance of the cranes: lots of squawking and  posturing, but the outcome has already been determined. Pay raises, working conditions improvement and increased benefits for all. Since the government (a monopoly) can simply raise its prices (taxes and fees) to cover the cost of the contract, it is less of a consideration during negotiations.

The Bureau of Labor Statistics data support the disparity between public and private sector workers. Nationwide, state and local employees receive 32% higher wages, 60% higher benefits and more job security than private sector workers. In Hawaii the disparity is probably much greater due to its high percentage of visitor industry employment. State & local government employees have superior medical, prescription and dental insurance benefits, at lower premium costs to themselves, than nearly all persons in the private sector. Retirement plans for public workers are far superior to those in the private sector. And the gap is rapidly growing as companies dump their defined benefit plans in favor of 401k and similar equity plans.

For example, medical care benefits were available to 71 percent of private industry workers, compared with 87 percent among government workers.  About half of private industry workers participated in a plan as compared to three-quarters of government workers. In Hawaii the number is closer to 100%

Sixty-one percent of private industry employees had access to paid retirement benefits, compared with 89 percent of State and local government employees.  Eighty-six percent of government employees participated in a retirement plan, significantly greater than the approximately half of private industry workers. In Hawaii the number is closer to 100%

Paid holidays, personal leave, and vacation are all much more generous for state and county employees than their public public sector counterparts.  Since 1995 property taxes nationwide have jumped 48%, that’s 30% higher than inflation.

When union officials take a non-concessionary stand they are just doing their jobs. When a politicians caves in to public union pressure, he or she is not doing their job and they are not representing the citizens of Hawaii.

Should private sector workers who are currently suffering the effects of the economic downturn in the form of pay cuts, layoffs, loss of  pensions and health care, pay more taxes and fees to support higher wages, benefits and job security for public employees? For the most part, your politicians say yes.