Indirect taxes make perfect sense — to politicians

We’ve heard a lot lately about the need to raise more revenue for the state and county. There have been several proposals discussed: higher GET, higher gas tax, more tourist taxes, etc. Perhaps the discussion should start with some basic questions like: How much of our state income should go to government spending? What should our taxes be used for? Who should be paying the taxes?

Hawaii is ranked the eighth highest state in taxes collected per capita. That should be enough for us to rank high in government services and infrastructure. But we have been ranked the worst state in the country for traffic congestion. During the 35 years I’ve lived on our island, there have been almost no new roads built or widened in West Hawaii, despite the substantial growth in population. Should the state and county be building more roads or just ramping up the regulations on developers and entrepreneurs?

We do have long wait times for services at some government offices. (Think about the DMV.) Yet we have been ranked eighth in the number of government employees per capita. Hawaii has been ranked the worst place to do business, so apparently most of the workers are regulating us rather than providing needed services.

We’ve also been ranked last for cost of living and housing affordability; again largely a function of over-regulation. The state does have the highest paid county workers in the country, which would explain where much of the money goes. So our legislators and county councils should take a hard look at how much money is being collected and how it is being spent.

Who should pay for our state and county services? To me, the obvious answer is the people who use the services. Taxing people who can’t vote here for services that they don’t use seems completely unfair.

For example, why should visitors and snowbirds pay for our schools? Our politicians may tell us that taxing these non-residents comes at no cost, but they are wrong. Perhaps for a few people with unlimited resources, it doesn’t matter. But I’m sure that for most visitors and other non-residents, the amounts that they can or will spend here are limited. So every extra dollar that is charged for taxes is a dollar that won’t be spent on lodging, food, activities, or other purchases from local businesses.

Politicians have always loved indirect taxes, whether they be taxes on businesses or on visitors. From a political perspective, it makes perfect sense. When we tax a business, it is not clear who bears the burden: Is it the owner? The customer? The employees? In reality, it is some combination of all three, depending on the business. The business owner may write the check for the taxes, but what impact does it have on the prices charged, or wages paid employees, or the number of employees hired, or even on whether the doors stay open? Because it isn’t clear, many voters who are indirectly impacted aren’t aware.

I prefer direct taxes – some combination of an income tax, consumption tax (sales tax), and property tax. Everyone who benefits from government services should pay some tax, so that when there is a demand for more services, everyone has some skin in the game. When you are robbing Peter to pay Paul, you can generally count on Paul’s support.

Although raising taxes on a small (wealthier) minority or on non-residents may be politically popular, it isn’t fair, and it does have an impact. At some point, the folks bearing the burden will leave. Would we be better off without them?


This article was originally published in West Hawaii Today on Feb. 27, 2019.

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