The following commentary was originally published April 5, 2021, in the Honolulu Star-Advertiser.
If there is a theme to this year’s legislative session, it would be, “taxes, taxes, taxes.”
Even before the 2021 legislative session began, there was talk about increasing taxes to make up for COVID-19 revenue losses. However, a federal bailout and better-than-expected forecasts from the state Council on Revenues made the rumored tax increases unnecessary — at least according to Gov. David Ige.
Unfortunately, the Hawaii Legislature didn’t get the memo.
Proposed tax hikes, tax surcharges and suspension of tax exemptions have dominated this year’s legislative hearings. But the headlines have been reserved for bills such as Senate Bill 56, which was approved 24-1 by the state Senate and would make Hawaii’s top marginal income tax rates the highest in the nation.
SB 56 opponents had hoped the bill was dead, due to its quadruple referral in the House. But its reanimated corpse lives on in House Bill 58, a “Frankenbill” that incorporates its predecessor’s proposed conveyance tax increase and repeal of more than a dozen general excise tax exemptions, then adds a hike in the estate tax for good measure.
Supposedly these tax hikes are intended to help the state meet its “strategic goals, avoid furloughs and layoffs for state workers, and prevent disruptions to essential government services.” They also have been supported on the basis of fairness and equity.
But considering that Hawaii is in the midst of its worst economic depression ever, it is baffling why our legislators would consider any tax hikes at all. They have been informed repeatedly in testimonies regarding SB 56 and other measures that there are many reasons to avoid more taxes, including:
>> Hawaii residents are already among the most taxed in the country; the state ranks first nationwide in per-capita state tax revenues, and fifth-highest when state and county per-capita tax revenue quotients are combined. That includes our regressive general excise tax that disproportionately hits the poor, and a progressive income tax that tops out at 11%, second only to California’s 13.3%. This might come as a surprise, but Hawaii’s top 1% already pays 23% of all income taxes in the state.
>> Taxes are a major factor in the state’s high cost of living, and one of the reasons for the state’s net population loss. Since 2016, nearly 22,000 people have moved away — including doctors, at a time when Hawaii is suffering a severe doctor shortage.
>> Hawaii businesses just barely escaped an automatic tripling of their state unemployment insurance (UI) taxes for 2021, thanks to fast work by the Legislature and governor. But their UI taxes still are going to increase by nearly 40%. More taxes could make the difference between viability and closure, especially for owners of S corporations. They also could exacerbate Hawaii’s high unemployment, which leads the nation.
As we can see, Hawaii has long been sending a message that it’s a tough place to live and do business. More taxes, or even just the threat of more taxes, will make that situation worse.
Perhaps it is asking too much for our legislators to consider lowering taxes, but at least they could commit to abandoning any more tax increases. A stable tax environment for at least a few years would inspire investor confidence and likely spur economic growth.
In the end, a “no new taxes” policy could generate more tax revenues for the state than any of these proposed tax increases ever could.