The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Ways and Means Feb. 27, 2023.
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February 27, 2023
10:35 a.m.
Conference Room 211
Via Videoconference
To: Senate Committee on Ways and Means
Senator Donovan M. Dela Cruz, Chair
Senator Gilbert S.C. Keith-Agaran, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: SB176 — RELATING TO TAXATION
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on SB176, which would allow the counties to continue their surcharges on the state general excise tax after its 2030 expiration date at the rate of 0.25%.
If this bill is enacted, the “temporary” rail surcharge on Hawaii’s general excise tax will join the ignominious list of other “temporary” taxes that eventually became permanent.
Put simply, this proposal is a hidden tax hike that takes advantage of the fact that people have become accustomed to the surcharge and will contribute to the ever-growing cost of living in Hawaii.
This surcharge was effectively a GET hike, and it disproportionately affects the most economically disadvantaged residents of our state. According to the Institute on Taxation and Economic Policy, Hawaii’s GET falls most heavily on those least able to afford it and takes up an average of 11% of family income for the poorest 20% of earners.[1]
In addition, Hawaii’s GET is often singled out as one of the barriers to doing business in our state.
The 2022 ALEC-Laffer State Economic Competitiveness Index (otherwise known as Rich States, Poor States) ranks Hawaii 50th among all states for its sales tax burden, meaning that the GET contributes a significant negative effect to the state’s economic outlook.[2]
The Tax Foundation estimates that because of the GET’s broad applicability and the fact that some products are taxed multiple times, Hawaii’s general excise tax, “ultimately taxes 119% of the state’s personal income,” compared to a national median of 36%.[3]
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.[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.
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.[5] 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.[6]
>> Hawaii has a progressive income tax that taxes high-income earners at 11%, second only to California at 13.3%.[7] Hawaii’s top 1% already pays 24.9% of all income taxes in the state.[8]
>> 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.[9]
>> State lawmakers increased taxes and fees substantially following the Great Recession of 2007-2008,[10]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.
In considering this proposal, it is impossible not to reflect on the fact that the state’s transient accommodations tax began as a temporary 5% tax in 1986, when it was only intended to help fund the construction of the Hawaii Convention Center.
Decades later, the tax is not only permanent, but it has more than doubled; spawned separate county and state versions; is targeted as the funding source for a variety of special programs; and is still the subject of tax hike proposals.
Is this the future of the GET? Will we see one surcharge after another pile up, always with a sympathetic rationale for its existence, but adding ever more to the high price of paradise?
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] Meg Wiehe, et al., “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” Sixth Edition. Institute on Taxation and Economic Policy, October 2018, p.54.
[2] Arthur B. Laffer, Stephen Moore and Jonathan Williams, “Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, 15th Edition,” American Legislative Exchange Council, 2022.
[3] Janelle Fritts, “State and Local Tax Rates, 2023,” Tax Foundation, Feb. 7, 2023.
[4] Jared Walczak and Erica York, “State and Local Tax Burdens, Calendar Year 2022,” Tax Foundation, April 7, 2022.
[5] Annalisa Burgos, “Experts: Hawaii’s economy poised to slow down ‘significantly,’ but stop short of recession,” Hawaii News Now, Jan. 22, 2023.
[6] 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.
[7] Timothy Vermeer and Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2022,” Tax Foundation, Feb. 15, 2022.
[8] “Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2020, Sept. 29, 2022, Table 13A.
[9] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[10] “Tax Acts (by Year),” Tax Foundation of Hawaii, accessed Jan. 30, 2023.
