Rep. Karl Rhoads Commentary on "Shared Sacrifice"

The following op-ed by Rep. Karl Rhoads appeared in this morning's Honolulu Advertiser:

Lingle shields rich from 'shared sacrifice'

By Rep. Karl Rhoads

The gist of Gov. Lingle's response to our current budget crisis has been a call for "shared sacrifice." While shared sacrifice evokes images of everyone pulling together to get through a difficult time, the reality is that most of the effects of the downturn have not been shared.

If we follow the governor's lead, state workers will bear the brunt of the burden and most everyone else will not be asked to make any sacrifice at all.

Instead, the pain of the recession needs to be more broadly distributed. The best way to do that is to tap the Rainy Day fund and temporarily raise income taxes on higher income wage earners.
Combined with the pay cuts that state workers have already accepted in principle, we can get through this economic crisis without gutting state government or unfairly pinning the blame for the recession on state workers. State workers did not cause this recession and they provide services most of us consider essential, such as inspecting our elevators, protecting us from food-borne illness and teaching our children. If anyone deserves special blame for the state of the economy, it is private-sector actors who were more concerned about making money than about the stability of the financial system.

To date, the recession has disproportionately affected two groups: those who have lost a job and those who have taken a pay cut. Right now 47,700 Hawai'i residents are unemployed, which means that almost 600,000 are still employed. While a 7.4 percent unemployment rate is far too high, it does mean that 92.6 percent of us are still employed. Data on how many have taken pay cuts are not readily available, but anecdotally it would appear the number is high.

Before deciding how to share the pain, we also need to look at who shared the gain of the good economic times. The answer to that question is very simple: the highest income earners. Instead of asking those whose share of the economic pie has been rapidly increasing to make any sacrifice (the average after-tax income of the top 1 percent of income earners rose 20 percent in one year from 2003 to 2004), Gov. Lingle vetoed a bill that would have raised taxes on a family making $350,000 by a mere $375 a year.

The Legislature overrode this veto and took a step in the right direction, but with the state's fiscal picture continuing to deteriorate, those of us in the highest income brackets are going to need to make a real sacrifice to see us through this difficult time.

Gov. Lingle has argued that protecting the income of the very richest will spur economic recovery. But protecting the income of the middle class (like state workers) is a more effective antidote to recession because higher income individuals rarely spend their entire paycheck. In a recession, spending is what brings recovery, not savings.

Gov. Lingle has suggested that "shared sacrifice" demands that state workers take a 14 percent pay decrease in the form of a three-day-a-month furlough. The average salary for a state unionized worker is $44,252. A 14 percent cut would amount to $6,195 a year. Gov. Lingle has also taken the position that state employees should pay the entire increase in cost of escalating health care premiums. For a family plan, this will amount to another $2,400 a year. Most of us would not be able to absorb an $8,595 decrease in salary. State workers are no different.

Real shared sacrifice requires that all of us accept the responsibility that comes with living in a democracy. State workers have indicated they are willing to take a 5 percent decrease in pay. Health care contribution negotiations are ongoing which may result in a further decrease in pay.

Temporarily raising income taxes spares those who are already struggling like the unemployed or underemployed, unlike an increase in the general excise tax. In combination, these measures will see us through to better times and will turn the slogan of shared sacrifice into a reality.

Rep. Karl Rhoads represents the 28th District (Palama, Downtown, Sheridan) and is chairman of the state House Labor and Public Employment Committee. He wrote this commentary for The Advertiser.