The following testimony was presented Feb. 15, 2023, by the Grassroot Institute of Hawaii to the House Committee on Housing.
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February 15, 2023
9:30 a.m.
Conference Room 312
Via Videoconference
To: House Committee on Housing
Rep. Troy N. Hashimoto, Chair
Rep. Micah P.K. Aiu, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: HB148 — RELATING TO TAXATION
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on HB148, which would levy a 3% surcharge on the conveyance of any property that has been vacant for more than 180 days in a calendar year.
The rationale for this bill is that a conveyance tax on vacant homes would discourage speculative investment — or at least encourage owners of those homes to rent them out in order to avoid the tax liability.
In support of this idea, the preamble cites the Vancouver empty homes tax, positing that a higher tax would be effective in achieving those goals.
However, we must caution against the assumption that the Vancouver tax is applicable in this context. First, the Vancouver tax was not a conveyance tax. In addition, preliminary data on the Vancouver tax does not take into account the long-term effect of the tax, as shelter-in-place orders and the COVID-19 emergency likely played a role in reducing vacancies as well.
Putting aside the question of whether a vacant homes tax is a good idea in general — upcoming research from the Grassroot Institute of Hawaii suggests that vacant homes have not had a meaningful effect on Hawaii home prices or rents over the past decade — we must make a distinction between a tax on vacant homes and a tax on the conveyance of vacant homes as envisioned in this bill.
A tax hike that inflates the cost of selling a home, vacant or not, will have the effect of discouraging the sale of such homes or inflating their price. Because no distinction is made concerning the value of the homes covered by this bill, this would include more affordable homes and homes sold to Hawaii residents.
Essentially, this bill is an experiment in taxation based on the hope that it will discourage real estate speculation. There is no data from a comparable tax measure to suggest that this bill will do anything other than raise the sales price of certain homes. Higher sales prices for Hawaii homes is the last thing we need right now.
In general, tax increases are not a good idea for Hawaii’s economy, especially not now when Hawaii residents already bear one of the highest tax burdens in the nation.[1] 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.
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.[2] 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.[3]
>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[4] Hawaii’s top 1% already pays 24.9% of all income taxes in the state.[5]
>> 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.[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 over the past 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] Jared Walczak and Erica York, “State and Local Tax Burdens, Calendar Year 2022,” Tax Foundation, April 7, 2022.
[2] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.
[3] 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.
[4] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.
[5] “Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2020, Sept. 29, 2022, Table 13A.
[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.
