Diversifying the economy: dominant competitors grow small businesses.

Editor’s Note: This is the third in a series of stories that take a closer look at the unique issues facing Hawaii and how the Democratic gubernatorial candidates are handling them. Also coming this week, Civil Beat partnered with Hawaii News Now to conduct in-depth interviews with both the Democratic and Republican primary candidates for governor. Civil Beat will post the full interviews on our gubernatorial race page, where you’ll find all the coverage leading up to the primary.

The dreaded shutdown of tourism since the pandemic began has highlighted the dangers of Hawaii’s dependence on the visitor industry, and Vicky Cayetano is proposing dramatic tax cuts for small businesses as the most important strategy to ultimately boost the state’s economy.

Lt. Josh Green, for his part, wants to use government subsidies to local agriculture, property tax breaks, direct aid to farmers for infrastructure and tax holidays for startups to make them profitable.

Civil Beat asked the Democratic candidates for governor about their recent, top priority efforts to expand the economy, and Green and Cayetano responded with those thoughts.

U.S. Rep. Kai Kahele, the top contender in the Democratic primary, declined to be interviewed for this series, saying through a spokeswoman that he was unhappy with the way Civil Beat covered the governor’s race.

Multiplying the state’s economy has been a talking point for politicians for decades, as the tourism industry grows to 10 million visitors a year and the state’s economy becomes dependent on it.

Cayetano, a longtime and successful Hawaii businesswoman, said Hawaii’s small businesses have been hit hard by the pandemic and are “desperately in need of help.” She is proposing the government halve the excise tax on companies with annual gross revenues of $5 million or less, and says the tax break should be permanent.

“If you’re looking around, you’re reading about another business going on almost every day,” she said. “Without a balance between local, family-owned small businesses and big box retailers, residents will not be served in the long term.”

The excise tax at the retail level is now 4.5% in Honolulu, Kauai and Hawaii counties and 4% in Maui County. The state received nearly $4 billion from that tax last fiscal year — more than 40% of the state’s total general fund tax collections — making it critical to fund state government operations.

Cayetano is running as a Democrat, but she was a Republican before marrying former governor Ben Cayetano in 1997, and her tax cut proposal sounds like a Republican proposal. But she rejects any attempt to put a party label on it, saying it is good for everyone.

When asked how she would sell to the staunchly Democratic Legislature, Cayetano said: “I believe that when you tell them the story and let them understand what’s at stake, they will support it.”

“If we keep the small business community alive and thriving, it benefits everyone. Therefore, it is better if he gives them a tax break than not getting them when their income goes down,” she said.

Cayetano said her proposal is partly defensive — she wants to support businesses here — but attracting new businesses or growing existing ones requires a “business-friendly culture,” and her tax cuts are just the start.

“It’s very difficult to start a business today, it really is, and so if we want to create a diverse economy, we have to look at the culture that we have, and Hawaii is not known for a business-friendly culture. To begin with,” she said. “We all know that, but no one talks about it.”

But the excise tax break presents practical and political problems for Cayetano gifts. For example, tax department officials say the state won’t know whether a particular business qualifies for Cayetano’s 50% excise tax break until the business files a tax return showing less than $5 million in revenue at the end of the year.

At that time, customers in that business were paying the full tax, which is arguably unfair. A business owner who qualifies for tax relief will keep half of the money raised as tax.

Paul Brebaker, an economist at TZ Economics, said another problem is that Hawaii’s state constitution requires a balanced budget, meaning Cayetano’s plan would force the state to cut spending or make up for lost excise tax revenue with tax increases. elsewhere.

Proponents of tax cuts sometimes argue that tax cuts stimulate economic growth so much that all lost tax revenue can be recouped through new business activity. He said it was a “rule of thumb” that the growth spurred by $100 million in tax cuts would generate only $20 million in new tax collections.

The green answer to diversifying the economy is to boost the agricultural and energy sectors, which includes targeted subsidies and tax credits for agriculture. He specifically mentioned tax credits for those interested in renovating or operating taro farms and traditional fishponds.

“We have agriculture and we have energy leaders in Hawaii, but they’re not supported enough to get off the ground completely,” he said. “We have to support it to reproduce, and that means tax credits to support land use.”

Green wants to help farmers build infrastructure like large greenhouses, which cost $1.5 million each and may be out of reach for start-up enterprises, he said.

He believes that housing for agricultural workers will be key, because without housing, the industry cannot attract the workforce it needs. Raised tax credit availability for those building agricultural homes on productive ag lands.

Green visions support the government to include property tax breaks, direct grants to support agricultural investment and productivity-based tax credits, meaning the state doesn’t pay for jobs until they are productive. Considers “tax holidays” for jobs that create jobs in Hawaii.

“We want to help big investments in hiring local workers until they become profitable,” he said.

Farmers in Hawaii have struggled to make ends meet for years, partly because of high land, labor, transportation and other costs, but the green farm is sure to still be profitable. In particular, he cited successful hemp and medical marijuana cultivation in other states, which he said is “very possible for us.”

Hawaii farmers have been calling for more investment in agriculture, but some doubt it’s a promising way to expand the state’s economy.

Brewbaker says large-scale agriculture outside of Hawaii is becoming more efficient, making it more difficult for Hawaiian farmers to compete. That helps explain why employment in agriculture in Hawaii has declined from 60% of the workforce a century ago to less than 1% today.

“No matter what you do with the experience of the last several generations from the government – whether it’s orchids or sugar and pineapples, but even in the horticultural industry – eventually it sets the path for what one does to a place. Either the labor is cheap, or the land is cheap, or there’s more of both,” he said.

There is potential in high prices and good markets, but all the real farmers, all the real breeders will tell you, it’s very difficult to make money, and then those[thieves]come in and steal my crops right away. Before harvest,” he said.