The following testimony was presented February 14, 2023, by the Grassroot Institute of Hawaii to the House Committee on Water and Land.
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February 14, 2023
8:30 a.m.
Conference Room 430 and Via Videoconference
To: House Committee on Water and Land
Rep. Linda Ichiyama, Chair
Rep. Mahina Poepoe, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: HB1211 — RELATING TO CONVEYANCE TAX
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on HB1211, which would significantly increase the conveyance tax rate.
Under this proposal, conveyance taxes on condos and single family homes valued over $1.5 million would increase significantly, assuming the buyer is ineligible for a county homeowner property tax exemption. Rates would also increase on all properties — both commercial and residential — valued above $4 million.
One premise of this bill is that the majority of homes sold for $1.5 million or more are bought by non-residents as investment properties and that a tax increase on these buyers would not affect overall affordability of homes.
Yet, many homes in the $1.5 million range are merely average homes across much of the state. Thus, the tax hike, if implemented, wouldl certainly affect all home prices, including more affordable homes and homes sold to Hawaii residents who might be ineligible for a homeowner property tax exemption.
In addition, higher conveyance taxes can harm the economy. A report by the Sage Policy Group on transfer taxes noted that such laws can “lead to decreases in population, real incomes, real estate transactions, investment in structures, and quality of the built environment.”[1]
Further, this measure might discourage adaptive reuse — the conversion of old buildings to new purposes. Hawaii’s counties can leverage adaptive reuse to add to their housing stock, as they are doing now,[2] but higher conveyance taxes may chill the sale of old buildings.
“Many properties will need to be upgraded and/or adaptively reused to remain viable,” the Sage report stated. “Excessive transfer tax rates can frustrate the exchange of property that is often required to return to commercial viability.”[3]
In general, tax increases are not a good idea for Hawaii’s economy, especially not now when it already has one of the highest tax burdens in the nation.[4] Hawaii’s population has been suffering a net decline for each of the past six years, with the state’s high cost of living and lack of employment opportunities being among the most cited reasons.[5]
Other issues to consider as you deliberate on this measure include the fact that:
>> Hawaii is predicted to enter an economic slowdown later this year.[6] 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.[7]
>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[8] Hawaii’s top 1% of taxpayers already pay 24.9% of all income taxes in the state.[9]
>> Hawaii’s continuing population decline leaves remaining residents with a higher tax burden. Many residents leaving Hawaii move to states without income taxes. Washington, Nevada, Texas and Florida — four of the top five destinations for Hawaii residents moving to the mainland — do not have income taxes.[10]
>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,[11]despite a windfall in revenues from an economic boom over the previous decade. Taxes and fees ballooned on motor vehicles, transient accommodations, estates, fuel, food, wealthy incomes, property, parking and businesses.
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] “The Unintended Consequences of Excessive Transfer Taxes,” Sage Policy Group, Inc. on behalf of the Community Coalition for Jobs and Housing, June 2022, p. 3.
[2] Lana Teramae, “Local Architects Talk About Repurposing Existing Buildings in Post-Pandemic Hawai‘i,” Hawaii Business Magazine, Sept. 6, 2021.
[3] “The Unintended Consequences of Excessive Transfer Taxes,” p. 3.
[4] Jared Walczak and Erica York, “State and Local Tax Burdens, Calendar Year 2022,” Tax Foundation, April 7, 2022.
[5] Maria Wood, “Where People from Hawaii Are Moving to the Most,” 24/7 Wall Street, Jan. 23, 2022.
[6] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.
[7] 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.
[8] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.
[9] “Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2020, Sept. 29, 2022, Table 13A.
[10] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[11] “Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Jan. 30, 2023.
