The following testimony was presented Feb. 3, 2023, by the Grassroot Institute of Hawaii to the Senate Committee on Health and Human Services.
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Feb. 3, 2022
1 p.m.
VIA VIDEOCONFERENCE
Conference Room 225
To: Senate Committee on Health and Human Services
Sen. Joy San Buenaventura, Chair
Sen. Henry Aquino, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: SB1239 — RELATING TO GENERAL EXCISE TAX
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer comments on SB1239, which would exempt from the state general excise tax medical services, rental income and groceries eligible under the Supplemental Nutrition Assistance Program.
This is a good bill, one that would make an immediate difference when it comes to addressing Hawaii’s high cost of living, which has been a major reason for the state’s steady decline in population over the past six years.
As we all know, the general excise tax is regressive, hitting low and middle-income individuals and families the hardest. Exempting medical services, rental payments and SNAP-eligible groceries would go a long way toward making Hawaii more affordable.
Under the proposed exemption for medical services, doctors and other medical professionals could save millions of dollars, which would make it easier for them to practice in Hawaii and help alleviate Hawaii’s critical doctor shortage.
The Grassroot Institute’s new report “The case for exempting medical services from Hawaii’s general excise tax,” explains how the GET is a barrier to running a private medical practice in the state of Hawaii.
For example, Hawaii is one of only two states with a broad tax on healthcare services. Worse, federal guidance prevents Hawaii doctors from passing along that tax to their Medicare and TRICARE patients, which leaves them no choice but to pay the tax out of their own pockets.
There are other factors that discourage medical personnel from practicing in Hawaii, such as the state’s high income taxes, high housing costs and low Medicare reimbursement rates. But the GET is a problem for medical providers that we can do something about right now. Given the state’s severe shortage of approximately 776 physicians, SB1239 is timely and important.
As you probably know, Hawaii’s not-for-profit healthcare providers, such as hospitals and community health centers, already are exempt from the state GET. So exempting for-profit, private practice physicians would only be fair, as well as save them approximately $200 million each year. Waiving the GET surcharges imposed by the counties would save an additional $22 million annually.[1]
The measure’s proposal to exempt groceries would also save taxpayers millions of dollars each year, while helping families keep food on the table. Research shows that taxes on groceries contribute to less spending on meals at home[2] and higher food insecurity.[3]
Reducing the GET on food immediately, at the point of purchase, would ensure families keep more of their paychecks instead of waiting until tax season to receive a tax credit — the value of which inflation would have already diminished.
Exempting groceries from the excise tax would also have significant economic benefits. The Georgia state auditor estimates that Georgia’s sales tax exemption for groceries has created more than 5,000 jobs and an additional $807 million in economic output.[4]
The measure also avoids the concern that tourists might be the primary beneficiaries from changes to the GET. By narrowing the exemption to SNAP-eligible food, the bill retains the excise tax on restaurants and thus covers a significant amount of visitor food spending.
Similarly, the exemption for medical services does not encounter the same concern. Few tourists plan on receiving medical care on their trip to Hawaii.
The cumulative economic effects of this bill could be quite large. The 2005-2007 Tax Review Commission estimated that a similar exemption for food, health care, clothes and shelter would slash GET revenues by $501 million — 22.3% of total GET revenues.[5]
If this measure reduced GET revenues by just 20%,[6] it would put almost $800 million back into taxpayers’ pockets, providing benefits across the board. Businesses and consumers would greatly appreciate the relief from Hawaii’s first in the nation cost of living.
Thank you for the opportunity to testify.
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] “How the state GET affects healthcare costs in Hawaii,” Grassroot Institute of Hawaii, Jan. 2020.
[2] Diansheng Dong and Hayden Stewart, “Food Taxes and Their Impacts on Food Spending,” U.S. Department of Agriculture, Economic Research Service, Sept. 2021, p. 7.
[3] Jianqiang Zhao, “Putting Grocery Food Taxes on the Table: Evidence for Food Security Policy-Makers,” Master’s Thesis, Cornell University, Aug. 2020, p. iii.
[4] “Tax Incentive Evaluation: Grocery Sales Tax Exemption,” Georgia Department of Audits and Accounts, Dec. 13, 2022.
[5] “Report of the 2005-2007 Tax Review Commission,” Dec. 1, 2006, p. 17.
[6] The state Department of Budget and Finance estimated that GET revenues in fiscal year 2024 will be approximately $3.9 billion. See: “Tables Indicating the Basis for Revenue Estimates,” Hawaii Department of Budget and Finance, Sept. 6, 2022, p. 24.
