The following testimony was presented Feb. 22, 2023, by the Grassroot Institute of Hawaii to the Senate Committee on Health and Human Services.
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February 22, 2023
10 a.m.
Conference Room 211 and via videoconference
To: Senate Committee on Health and Human Services
Senator Donovan Dela Cruz, Chair
Senator Gilbert Keith-Agaran, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: SB362 SD1 — RELATING TO THE CONVEYANCE TAX
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on SB362 SD1, which would double the conveyance tax rate on single-family homes and condos valued at $2 million or more.
This bill exempts from the conveyance tax properties financed in some way by the Hawaii Housing Finance and Development Corp., provided that such properties are to be used exclusively for affordable housing. It also removes the cap on what portion of conveyance tax revenues may go toward funding the rental housing revolving fund.
Our main concern about this bill is that higher conveyance taxes might harm Hawaii’s economy. A report by the Sage Policy Group on transfer taxes notes that such laws can “lead to decreases in population, real incomes, real estate transactions, investment in structures, and quality of the built environment.”[1]
It seems to us that Hawaii is in no position to be risking such impacts, regardless of whatever the motive of this bill might be.
Furthermore, with land-use, zoning and other regulations continuing to throttle Hawaii homebuilding — leaving Hawaii with a massive housing shortage and no prospect of a building boom any time in the near future — there is no guarantee that $2 million won’t someday soon be the median home price in in some areas of the state, which would rebound on a large portion of Hawaii homeowners far sooner than we might expect.
That might seem to be a stretch, but few people thought that Hawaii’s median price would soon reach even $1 million when Honolulu County established a tiered Residential A property tax classification for tax year 2018, with properties valued above $1 million facing a higher tax rate.[2]
Now, the category encompasses many Oahu homes, with political pressure building to increase the threshold or abolish the tax category completely.[3]
Looking at the even broader picture, tax increases in general 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% already pays 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 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] “The Unintended Consequences of Excessive Transfer Taxes,” Sage Policy Group Inc., based in Baltimore, Maryland, on behalf of the Community Coalition for Jobs and Housing, June 2022, p. 3.
[2] “Real Property Tax Rates in Hawaii, Fiscal Year July 1, 2017 to June 30, 2018,” Real Property Assessment Division, Department of Budget and Fiscal Services, City and County of Honolulu, accessed Feb. 20, 2022.
[3] Jim Howe and Linda Howe, “Blangiardi, Kiaaina Must Act On ‘Residential A’ Property Taxes,” Honolulu Civil Beat, Jan. 5, 2023.
[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.
