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This is a combination of four separate testimonies submitted by the Grassroot Institute of Hawaii on Feb. 10, 11, 12 to four separate committees considering tax proposals.
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RE: HB771 — RELATING TO LIQUOR
House Committee on Consumer Protection & Commerce
Rep. Aaron Ling Johanson, Chair
Rep. Lisa Kitagawa, Vice Chair

RE: SB871 — RELATING TO HOUSING
Senate Committee on Housing
Sen. Stanley Chang, Chair
Sen. Dru Mamo Kanuha, Vice Chair

RE: SB155 — RELATING TO PEER-TO-PEER CAR-SHARING
Senate Committee on Transportation
Sen. Chris Lee, Chair
Sen. Lorraine R. Inouye, Vice Chair

RE: HB1388 — RELATING TO TAXATION
To: House Committee on Economic Development
Rep. Sean Quinlan, Chair
Rep. Daniel Holt, Vice Chair

From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on: 

>> HB771, which would establish a three-year surcharge on the state’s existing liquor tax.

>> SB871, which would increase the conveyance tax rate on condominiums and single-family residences for which the purchaser is ineligible for a county homeowner’s exemption on property tax.

>> SB155, which would establish a peer-to-peer car-sharing surcharge tax.

>> HB1388, which would eliminate the home mortgage interest deduction for second homes under Hawaii income tax law.

We are gravely concerned about the impact of these taxes and the many other tax increases and surcharges that have been proposed this legislative session. Hawaii residents are already among the most taxed in the country; the state has the second-highest overall tax burden in the U.S.

That high tax burden contributes to Hawaii’s cost of living and is one of the reasons why so many Hawaii residents have been leaving in search of greater opportunities elsewhere.

Given the state’s already-high tax burden, there is never a good time to raise taxes. But these proposals come at an especially bad time. The state is still in a state of emergency, tourism has slowed to a trickle, businesses are closing and unemployment is high. The economy will take years to recover from the pandemic and lockdowns. The last thing Hawaii residents and businesses need at this point is a tax hike.

There are myriad reasons policy makers should be wary of implementing tax hikes at this time. Here are just a few:

>> Hawaii cannot sustain a hike in taxes since its already-damaged economy was hit harder by the lockdowns than any other state in the nation.

>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008, despite a windfall in revenues from an economic boom over the past decade. Taxes and fees ballooned on motor vehicles, transient accommodations, estates, fuel, food, wealthy incomes, property, parking and businesses.

>> Hawaii’s population reduction of 21,879 people since fiscal 2016 has left Hawaii’s remaining taxpayers with a greater tax burden.

>> Hawaii businesses are already bracing for an automatic tripling, on average, of the state unemployment tax. The UI tax rate depends not only on individual employer’s claims experiences but also on the overall health of the state’s unemployment insurance fund, which is hundreds of millions of dollars in the red.

>> Hawaii already has a regressive general excise tax that disproportion-
ately hits the poor.

>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%. Hawaii’s top 1% already pays 23% of all income taxes in the state.

>> Closing tax exemptions would amount to a tax hike for Hawaii businesses already facing a steep spike in their unemployment insurance taxes.

>> Increasing Hawaii’s lowest-in-the-nation property-tax rates would result in a much higher overall tax bill compared to other states because Hawaii residents uniquely pay for public education through the general fund as opposed to property taxes. Additionally, Hawaii’s low property taxes are balanced out by the highest housing costs in the nation, which results in a $1,236 average annual property tax per capita, which is only slightly below the national average of $1,617.

Hawaii needs leadership that will stabilize the current financial crisis, reduce unsustainable long-term costs and lower the cost of living. Balancing the books without tax increases or future debt could send a message that Hawaii is a good place for businesses and future generations, and this could help the economy thrive while motivating people to return to the islands.

If the state needs more revenues, policymakers should focus on growing the economy. In our current condition, even small economic gains would have big effects.

If the purposes of the proposed taxes are to alter behaviors, consider that the negative impact of a tax hike can far outweigh whatever policy goal is being pursued.

Hawaii’s residents and businesses need a break from new taxes, fees, surcharges and tax hikes. This is not the time to make Hawaii a more expensive place to live and do business.

Thank you for the opportunity to submit our comments.

Sincerely,

Joe Kent
Executive Vice President,
Grassroot Institute of Hawaii