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This week, the Grassroot Institute of Hawaii offered comments on a number of proposals to extend the GE Tax surcharge. Below, you will find the remarks made by Grassroot President Keli’i Akina before the House Committee on Finance.

 

Aloha Chairperson Luke and Committee Members.

My name is Keli’i Akina. I’m the President of the Grassroot Institute of Hawaii, an independent economic think tank. And at the outset I want it to be known that we do not oppose creative ways to raise finances in the counties. Nor are we here to comment on the rail project itself. The one specific item we’d like to offer some commentary on is the GE Tax.

As you know, there are at least half a dozen bills making their way through the legislature now which are attempting to raise the GE Tax for a variety of projects. Some will succeed, some will not succeed. The question that is important for your committee as the Finance Committee is not only the merits of a particular project, nor is it your responsibility to fund that project. You have to take a look at the overall fiscal health of the state of Hawaii. You have to ask the question: “Is raising the GE Tax good fiscal policy?”

The Grassroot Institute is part of a network of think tanks in fifty states. One of the things we do is come up with “best practices” in terms of fiscal policy. There’s an outstanding report on this, the ALEC-Lauffer Report on State Economic Competitiveness, which in 2014 dropped Hawaii’s standing as a competitive business climate to number 50 out of 50 states, citing our sales tax as repressive both to businesses and consumers.  The Tax Foundation – the national organization – simultaneously ranked Hawaii in the bottom quartile of states in terms of business economic climate, citing the GE Tax as one of the worst practices amongst the fifty states. I could go on, but the data is there when we compare states, state to state.

But it is not just a problem for the business climate when you increase the GE Tax. It is also a problem for the people who elected you to office, people for whom you care. I’m grateful that our Mayor [Caldwell] cares greatly about “social justice” with the rail. That’s very important. But there is a problem in financing that rail with the GE Tax. According to the Institute of Taxation and Economic Policy, Hawaii is ranked as the 15th most unfair tax system in the entire nation. And that’s specifically because the bottom 20% of income earners in Hawaii pay 11% of all their income on GE Taxes. And the poorer you are, the more of your income goes to GE Tax.

The Mayor has mentioned that it is fortunate that 30% of our GE Tax is paid for by the tourist industry. But we have to clarify that figure in a couple of ways. First, that figure is not as high as 30%. If you take a look at information from Tom Yamachika and the Tax Foundation [of Hawaii], the figure is closer to 20%.

The second issue is that the Mayor is looking at this [GE Tax from tourists] as a balance sheet. In other words, if we take an estimated amount of GE Tax—which is very difficult to estimate—and take a chunk of that out and estimate how much comes from tourist revenues, we get a static figure. But the problem is this: the GE Tax has a life that can only be measured by the flow of income. Every time a consumer purchases, every time a business has to pay it, it creates a regressive result. The point is that although a portion of the rail would be paid for by tourist dollars, the negative impact upon consumers and businesses by raising the GE Tax would still be felt.

Let me close with this thought: taxpayers gave their consent for this project to go forward with the promise that the surcharge on rail would be temporary. You have the opportunity to make good on that promise and to promote more creative ways for the counties to finance themselves, and let the rail come up with solutions for its own financing. Your responsibility is the fiscal health of the state.

Thank you on behalf of the Grassroot Institute.