The following testimony was submitted Feb. 7, 2023, by the Grassroot Institute of Hawaii to the Senate Committee on Health and Human Services, and the Senate Committee on Housing.
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February 7, 2023
2:15 p.m.
Conference Room 225
Via Videoconference
To: Senate Committee on Health and Human Services
Senator Joy A. San Buenaventura, Chair
Senator Henry J.C. Aquino, Vice Chair
Senate Committee on Housing
Senator Stanley Chang, Chair
Senator Dru Mamo Kanuha, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: SB678 — RELATING TO THE CONVEYANCE TAX
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on SB678, which would significantly increase the conveyance tax rate.
Under this bill, properties with a value of less than $2 million dollars would be subject to a conveyance tax of 55 cents per $100, up from a range of 15 to 40 cents under current law.
The conveyance tax on properties valued at $2 to $4 million would go from 60 cents to $2 per $100.
On properties valued from $4 to $6 million, the tax would go from 85 cents to $4 per $100; on properties from $6 to $10 million, the tax would go from $1.10 to $5 per $100; and on properties of $10 million or more, the tax would go from its current rate of $1.25 to a rate of $6 per $100.
One premise of this bill is that the majority of homes sold for $2 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, this bill would increase the conveyance tax for all homes, nearly doubling the current tax rate on homes in the $1 million range, which is merely an average home in Hawaii. Thus, the tax hike will certainly affect all home prices, including more affordable homes and homes sold to Hawaii residents.
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.[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.[2]
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.[3] 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.[4]
>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[5] Hawaii’s top 1% already pays 24.9% of all income taxes in the state.[6]
>> 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.[7]
>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,[8]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] Maria Wood, “Where People from Hawaii Are Moving to the Most,” 24/7 Wall Street, Jan. 23, 2022.
[3] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.
[4] 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.
[5] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.
[6] “Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2020, Sept. 29, 2022, Table 13A.
[7] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[8] “Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Jan. 30, 2023.
