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Testimony on SB2441: No to nickel-and-diming liquor drinkers

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration on Feb. 4, 2022, by the Senate Committee on Commerce and Consumer Affairs.
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To: Senate Committee on Commerce and Consumer Protection
       Senator Rosalyn H. Baker, Chair
       Senator Stanley Chang, Vice Chair 

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

RE: SB2441 — RELATING TO LIQUOR

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on SB2441, which would add a 10 cents-per-drink surcharge on the state’s existing liquor tax.

We are concerned about the impact of this tax on the state’s struggling businesses, especially the hospitality industry. In addition, we cannot ignore the fact that this is yet another tax that will fall heavily on local residents.

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 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 is especially poorly timed. The state is still in a state of emergency, businesses are struggling to remain open and unemployment is high. The economy will take years to recover from the lockdowns.

In particular, restaurants and bars have been especially hard hit by the lockdowns. Many have closed their doors for good. The ones that remain open are struggling to deal with higher costs and a smaller customer base. A tax hike on alcoholic drinks would be another burden on an industry that has suffered greatly over the past two years.

There are myriad reasons policymakers 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 32,237 people since fiscal 20163 has left Hawaii’s remaining taxpayers with a greater tax burden.

>> Hawaii has a regressive general excise tax that disproportionately hits the poor.4 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.5

>> 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.6

Hawaii needs leadership that will stabilize the current financial crisis, reduce unsustainable long-term costs and lower the cost of living.

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 benefit there might be to the policy goal 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
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  1. Dave Segal, “Hawaii’s unemployment rate hit nation-high 15% in September,” Honolulu Star-Advertiser, Oct. 20, 2020.
  2. Tax Acts (by Year),”Tax Foundation of Hawaii, accessed Feb. 8, 2021.
  3. Annual Estimates of the Resident Population for the United States, Regions, States, the District of Columbia and Puerto Rico: April 1, 2010 to July 1, 2020 (NST-EST2020)” U.S. Census Bureau, Population Division, December 2020. See also, “U.S. Census data,” accessed Jan. 3, 2022.
  4. “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index: Sales Tax Burden,” American Legislative Exchange Council, 2021.
  5. Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2020,” Tax Foundation, Feb. 4, 2020.
  6. Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation, December 2020, Table 13A.

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