Just about all of us have heard a story or seen a movie featuring that quintessential character from high school days: the prom queen. And the plot often turns out the same. Spending her youth getting by on good looks and a million-dollar smile, the good years are a lot of fun for the prom queen. She’s reached the height of her popularity, attracting attention from everyone simply by her stunning appearance. Unfortunately, as times change, life’s not so easy – she becomes just another pretty face, or worse, loses her allure and realizes she should have paid attention in class.

Hawaii, having enjoyed a strong national economy and a booming tourism industry, has a lot to learn from the tale of the prom queen -- and unlike a book or a movie, there are real-life consequences if the lesson doesn’t stick. Unless the Aloha State embraces pro-growth tax and fiscal policies, sandy beaches and cloudless skies won’t be enough to sustain its economy.

Hawaii, like most states, faces a significant projected budget deficit. It’s true that some factors outside the control of lawmakers in Honolulu contributed to the current economic slowdown and fall-off in tax receipts. Nonetheless, revenue could never have kept pace with the 61 percent increase in state spending over the past decade, even absent a recession. Rather than come to terms with their spending addiction, however, politicians are now looking to squeeze taxpayers for every last penny.

Not only are their remedies misguided, they’re also set to inflict tax-related damage where it will hurt the most. For starters, lawmakers have decided to levy an additional $60 million per year in hotel taxes. They argue that because hotel rooms are generally occupied by tourists, the tax burden is being exported out of state, allowing Hawaii citizens to enjoy the benefits of state spending without footing the bill.

This approach is flawed for two reasons. First, tourism is obviously Hawaii’s most important industry. It’s not as if vacationers are flocking to the state right now either; a recent report claimed the industry to be in “crisis mode.” Visitor arrivals dropped 12.7 percent in February, the worst performance in 18 years. Now elected officials want to make it more expensive for people to spend time here?

Second, tax policy that allows the majority of citizens to benefit from government spending without paying for it is problematic. As government shifts more of its cost onto the backs of out-of-staters, there is less incentive for Hawaii citizens to scrutinize the growth of government. If it’s “free,” what’s the point in keeping an eye on the out-of-control spending that largely got Hawaii into this budget situation in the first place?

Unfortunately, tourism tax hikes aren’t the only hyper-targeted revenue raiser being considered in Honolulu. Cigarette taxes have the same effect – they single out a small, politically unpopular minority and designate them the burden bearers of bloated government. The negative implications of tobacco use aside, high excise taxes on cigarettes are bad for everyone, whether you’ve never inhaled or whether you smoke three packs a day.

That’s because real-world evidence has shown us that these tax hikes rarely meet their revenue projections. Between 2003 and 2007, state cigarette taxes were increased 57 times. Only 16 of those instances resulted in actual revenue meeting predictions. Arkansas, the most recent state to hike the tax, revised its revenue estimate down 17 percent not a month after the Governor signed legislation into law. When policymakers don’t get the money they’d expected for their pet programs, non-smokers will be shaken down next.

It’s as if state legislators feel they haven’t gone far enough in devastating the tourism industry. Retail is next. When the price of a good increases, via taxation or any other method, people consume less of it. That means less business for Hawaii’s retailers who are already feeling the pinch.

Balancing budgets by boosting taxes rather than restraining spending is rarely a good idea, but in the middle of a recession, it is self-defeating. Where beauty and charm once made the 50th state the most popular fixture at the prom, bungled fiscal policy could leave it alone and out of luck now that the party’s over. It seems many folks in the Capitol Building should have paid attention in class too – the one called Economics 101.

-GIR-

Josh Culling is the State Government Affairs Manager at the National Taxpayers Union in Washington DC and is in Hawaii this week speaking at Grassroot Institute of Hawaii events and meeting with members of the state legislature and government. Please visit www.ntu.org