HB1146: Credit won’t offset tax-hike harm

The following testimony was presented Feb. 7, 2023, by the Grassroot Institute of Hawaii to the House Committee on Energy & Environmental Protection.

February 7, 2023
8:45 a.m.
Conference Room 325 and Videoconference

To: House Committee on Energy & Environmental Protection
      Rep. Nicole E. Lowen, Chair
      Rep. Elle Cochran, Vice Chair

From: Grassroot Institute of Hawaii
           Ted Kefalas, Director of Strategic Campaigns


Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on HB1146, which would create a refundable income tax credit in the attempt to offset a proposed massive increase in the tax on petroleum products and fossil fuels.

If enacted, this bill also would create an income tax credit that would gradually increase from $65 for single taxpayers and $130 for those filing jointly in 2024 to $480 or $960 plus an additional child credit of $240 in 2036 and beyond.

This tax credit is meant to offset a proposed increase in Hawaii’s existing barrel tax from $1.05 currently to between $3.78 and $6.46, depending on the type of fuel, by 2024. Gasoline would be taxed at $5.27 a barrel.

By 2036, the barrel tax would range from $21.84 to $42.25, depending on fuel type. The gasoline tax in 2036 would be $33.16 a barrel.

Energy taxes also would be increased, from the current 19 cents per 1 million BTUs to $1.29 for coal and 80 cents for natural gas in 2024. By 2036, that tax would be $8.54 for coal and $4.80 for natural gas.

The proposal outlined in this bill appears to be based on the faulty idea that it is possible to reimburse Hawaii residents for the economic impact of a massive tax hike — as though taxes were simply a question of money-in, money-out, with the state government operating as a type of bank. However, such an approach deeply underestimates the impact of tax hikes, especially energy tax increases, on the economy as a whole.

Despite the tax refund included in the proposal, this bill would absolutely raise the cost of living in Hawaii. This bill is, in fact, a continuation of the policy of social planning-via-taxation that has helped make Hawaii one of the most expensive states in the nation.

Higher fuel taxes definitely would make it harder for businesses to survive, which could discourage business investment and rebound on Hawaii employment. Many Hawaii companies are still struggling from the effects of the COVID-19 lockdowns, and now we are in an inflationary environment that is further making it hard to make ends meet.

Hawaii residents in general are beset with taxes, bearing the secondhighest overall tax burden in the U.S. That high tax burden contributes to Hawaii’s cost of living and is one of the reasons Hawaii’s population has been declining every year for the past six years. The last thing Hawaii residents and businesses need at this point is a tax hike.

In addition, the state is projected to have a $10 billion budget surplus by FY2027, so lawmakers cannot claim they  “need” this extra revenue.

If members of this committee are looking for reasons to object to this proposed massive tax hike, Here are a just a few:

>> Hawaii is predicted to enter an economic slowdown later this year.[1] Tax hikes might only exacerbate this slowdown, since entrepreneurs will be less likely to want to invest their capital — or “wealth assets,” as the case may be.[2]

>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[3] Hawaii’s top 1% already pays 24.9% of all income taxes in the state,[4]

 and everyone earning more than $100,000 — equal to 17% of all Hawaii taxpayers — are paying 67% of the total.[5]

>> The continuing exodus of Hawaii residents due to the state’s high cost of living has been leaving those who have stayed with a higher tax burden. Washington, Nevada, Texas and Florida — four of the top five destinations for Hawaii residents moving to the mainland — do not have income taxes.[6]

>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,[7] despite a windfall in revenues from an economic boom during the previous decade. Taxes and fees ballooned on motor vehicles, transient accommodations, estates, fuel, food, wealthy incomes, property, parking and businesses.

In sum, it cannot be understated how much of an impact this bill, if enacted, would have on Hawaii’s cost of living — a difference that cannot be captured in a simple tax refund.

Every business, from doctor offices to grocery stores, will have to account for the higher energy costs and fuel costs, translating into higher transportation and delivery costs, that will result from this tax. Those costs will become part of their overhead and force them to raise prices accordingly.

Even if Hawaii residents could trust that the refund would not be canceled, or that the tax would not go even higher, the refunds proposed in this bill would never come close to undoing the economic damage that its tax hikes would do to our state economy.

We hear a lot about helping lower income families, but this bill seems designed to make Hawaii even more unaffordable. If enacted, it would cause more businesses to close and more locals to leave Hawaii.

If policymakers are serious about helping working families, they should abandon the high-tax approach that has already established Hawaii as the state with the highest cost of living.

Instead, they should focus on lowering those costs by reducing income taxes, creating an exemption to the general excise tax for groceries and medical services, lowering fees and reducing regulations that limit opportunities and stifle economic growth.

Thank you for the opportunity to submit our comments.


Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.

[2] Aaron Hedlund, “How Do Taxes Affect Entrepreneurship, Innovation, and Productivity? Center for Growth and Opportunity at Utah State University, Dec. 23, 2019; Ergete Ferede, “The Effects on Entrepreneurship of Increasing Provincial Top Personal Income Tax Rates in Canada,” Fraser Institute, July 10, 2018; Robert Carroll, Douglas Holtz-Eakin, Mark Rider and Harvey S. Rosen, “Personal Income Taxes and the Growth of Small Firms,” National Bureau of Economic Research, October 2000.

[3] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.

[4]Hawaii Individual Income Tax Statistics: Tax Year 2020,” Hawaii Department of Taxation, Sept. 29, 2022, Table 13A.

[5] Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation, Sept. 2022, p. 44.

[6] Katherine Loughead, “How Do Taxes Affect Interstate Migration? Tax Foundation, Oct. 11, 2022.

[7]Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Jan. 30, 2023.

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