The Grassroot Institute, in cooperation with the Fraser Institute, has released a report titled, “Economic Freedom of North America, 2016.” The report shows that Hawaii ranks near the bottom in terms of economic freedom, at number 46.
Economic Freedom of North America 2016 is the twelfth edition of the Fraser Institute’s annual report. This year it measures the extent to which the policies of individual provinces and states were, in 2014, supportive of economic freedom, the ability of individuals to act in the economic sphere free of undue restrictions. There are two indices: one that examines provincial/state and municipal/local governments only and another that includes federal governments as well. The former, our subnational index, is for comparison of individual jurisdictions within the same country. The latter, our all-government index, is for comparison of jurisdictions in different countries.
Hawaii Economic Freedom – Fact Sheet
Hawaii ranks 46th among the 50 states in economic freedom, which is the same as the year before. The Aloha State’s biggest problems are high taxes, and high government spending on workers’ compensation, public pensions and social programs. Hawaii also suffers from a high cost of living caused in part by protectionist regulatory policies.
Hawaii’s 46th place ranking is worse than it appears, however, as the state is tied with several other states and Canadian provinces for that ranking. Only two states rank worse than Hawaii–California and New York.
Government spending continues to be an issue in the Aloha State. Hawaii ranked 40th in General Consumption Expenditures by Government as Percentage of Income. As government spending increases beyond what is necessary to provide its protective and productive functions, overall economic freedom shrinks.
Again reflecting the issues inherent in Hawaii’s unfunded liabilities and unsustainable public pension plan, the state ranked 27th overall in Insurance and Retirement Payments as a Percentage of Personal Income.
Hawaii ranked 49th overall in taxation, dragged down by especially low scores in two areas: top income tax rate (49th) and sales tax revenue as a percentage of personal income. Hawaii ranked last place in tax policy for the state’s General Excise Tax, a regressive tax which puts a heavy burden on residents making a low or moderate income.
One area where Hawaii performed well is in Property Tax and Other Taxes as a Percentage of Income (that is, taxes other than income, payroll, and sales taxes). The state has often been praised for low property tax rates, and this year’s report was no exception, with Hawaii scoring a ranking of 10th overall in this category.
Hawaii ranked a middling 38th overall in Labor Market Freedom, though that position is likely to decline in the near future. The state’s ranking of 13 in Minimum Wage Legislation is probably temporary, given recent changes in the law and the possibility of additional legislative initiatives to change the state’s minimum wage. Moreover, Hawaii also ranked 48th in union density, which makes up a large portion of the state’s economy.