This is a combination of seven separate testimonies submitted by the Grassroot Institute of Hawaii on Feb. 24 and 25, 2021 for consideration by two separate Hawaii legislative committees considering tax proposals.
RE: SB666 SD1 — RELATING TO ENVIRONMENTAL PROTECTION
To: Senate Committee on Ways and Means
Sen. Donovan M. Dela Cruz, Chair
Sen. Gilbert S.C. Keith-Agaran, Vice Chair
Feb. 24, 2021
RE: HB1142 — RELATING TO ENERGY
RE: HB433 — RELATING TO CLIMATE CHANGE MITIGATION
RE: HB133 — RELATING TO CAPITAL GAINS
RE: HB445 — RELATING TO INCREASING THE ESTATE TAX
RE: HB476 — RELATING TO TAXATION
RE: HB485 — RELATING TO TAXATION
To: House Committee on Finance
Rep. Sylvia Luke, Chair
Rep. Ty J.K. Cullen, Vice Chair
Feb. 25, 2021
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on:
>> SB666 SD1, which would establish a surcharge of $20 on transient accommodations for the purpose of funding workforce and services that promote certain environmental goals.
>> HB1142, which would establish a surcharge on the sale of high-end gasoline-powered vehicles.
>> HB433, which would assess a climate change impact fee on anyone who rents, leases, or utilizes a rental motor vehicle.
>> HB133, which would increase the capital gains tax threshold to 9%.
>> HB445, which would amend the exclusion amount of Hawaii’s estate tax.
>> HB476, which would impose a 50% excise tax on the wholesale price of every wholesaler for each modified risk tobacco product sold, used, or possessed by a wholesaler, and establish taxation of e-liquids used in electronic smoking devices and require licensing and permits for wholesalers and retailers of such products.
>> HB485, which would increase the rental motor vehicle surcharge to an as-yet unspecified amount.
We are gravely concerned about the impact of this tax and the many tax increases, fees, 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 this proposal comes 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.1
>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,2 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 20163 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.4 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.5
>> Hawaii already has a regressive general excise tax that disproportionately hits the poor.6
>> 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 rates9 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.10 Additionally, Hawaii’s low property taxes are balanced out by the highest housing costs in the nation,11 which results in a $1,236 average annual property tax per capita, which is only slightly below the national average of $1,617.12
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 purpose of the tax is to alter behavior, 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.
Executive Vice President,
Grassroot Institute of Hawaii
- Dave Segal, “Hawaii’s unemployment rate hit nation-high 15% in September,” Honolulu Star-Advertiser, Oct. 20, 2020.
- “Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Feb. 8, 2021.
- “Annual Estimates of the Resident Population for the United States, Regions, States, and the District of Columbia: April 1, 2010 to July 1, 2020 (NST-EST2020)” U.S. Census Bureau, Population Division, December 2020.
- “State unemployment tax slated to automatically triple in 2021,” Grassroot Institute of Hawaii, Nov. 16, 2020.
- “UI Budget,” United States Department of Labor, Employment & Training Administration, Feb. 8, 2021.
- “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index: “Sales Tax Burden,” American Legislative Exchange Council, 2021. Note that Hawaii does not have a sales tax, but a state general excise tax that is levied on almost all goods and services, and imposed multiple times throughout the production chain.
- Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2020,” Tax Foundation, Feb. 4, 2020.
- “Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation, December 2020, Table 13A.
- John Keirnan, “Property Taxes by State,” WalletHub, Feb. 25, 2020.
- Janis Magin, “Hawaii lawmakers seek to add new property tax to fund teacher pay,” Pacific Business News, Jan. 27, 2020.
- “Average House Price by State in 2020,” The Ascent, Aug. 4, 2020
- Janelle Cammenga, “How Much Does Your State Collect in Property Taxes per Capita?,” Tax Foundation, March 11, 2020.