The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui County Council on June 20, 2023.
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June 20, 2023
9 a.m.
Maui County Council Chamber
To: Maui County Council Budget, Finance and Economic Development Committee
Yuki Lei K. Sugimura, Chair
Tasha Kama, Vice Chair
From: Grassroot Institute of Hawaii
Joe Kent, Executive Vice President
RE: Bill 49 (2023) — Relating to instituting a general excise tax surcharge
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on Bill 49 (2023), which would add a 0.5% county surcharge to the state’s 4% general excise tax for the purpose of funding “housing infrastructure,” including “water, drainage, sewer, waste disposal, and waste treatment systems that connect to the infrastructure of the county.”
As we said before, we are concerned that this bill would drive up the cost of living on Maui and harm lower- and middle-income families the most.
Increasing prices would also have a negative economic impact on Maui County residents in general. To quantify these impacts, we used an economic modeling software program known as IMPLAN.
In our model, we assumed that tourists would pay 25% of the GET surcharge, which is in line with other estimates.[1] Thus, residents of Maui County would pay the remaining 75% of the tax — roughly $60 million of the $80 million the County projects the tax would generate each year.
To model the effect of a $60 million tax hike, we assumed that this surcharge would lower Maui residents’ household incomes, since they would have to spend more money just to maintain the same standard of living.
If each of the 57,354 households in Maui County paid the same amount in tax because of the new surcharge, each would owe an additional $1,046.13 a year. Table 1 shows the likely economic consequences under that scenario.[2]
It is likely that Maui households under the poverty line would not pay an additional $1,046 a year in tax, because many of them purchase food using SNAP — the Supplemental Nutrition Assistance Program, formerly known as food stamps — which is exempt from the GET.[3] Rents from certain affordable housing projects also are exempt from the GET, according to state law.[4]
However, even in a scenario in which households making more than $200,000 — the highest income bracket in the IMPLAN software — paid the entire $60 million of the new surcharge, there would be tangible economic downsides. These are described in Table 2.
Thus, the true impact of the new GET surcharge would likely be between 202 and 280 jobs lost, in addition to millions of dollars lost in wages, value added and economic output.
A large portion of the tax burden would no doubt fall on middle-income families and those who are just above the poverty line. That’s because they spend a large percentage of their earnings on basic necessities but do not qualify for state or federal poverty assistance programs. In that sense, the GET is a regressive tax.
Granted, these figures are probably underestimates of the total cost of the surcharge. If tourists paid less than 25% of the new tax, more of it would be borne by Maui residents.
In addition, if tourists reduced their spending to compensate for the new tax, that would cause economic harm to many of the small shops in Maui that get most of their business from tourists.
Another possible downside is that GET increase could exacerbate the state’s well-documented doctor shortage.[5] The problem is that too many private practice physicians operate on a very slim margin and medical services are not exempt from the GET, which has led to many doctors moving to the mainland or simply closing up shop and retiring.[6]
As for the purpose of this bill, yes, housing infrastructure needs to be addressed, but that could easily happen through reallocation of current spending and not through a tax that will cost residents jobs and increase the cost of living.
Instead of increasing taxes, county officials could implement smart zoning reforms to allow smaller housing units that would come with lower infrastructure costs and be more affordable to local families.
Promoting ohana units, duplexes and apartment buildings and relaxing parking minimums would be a good first step.
Overall, throwing more money at Maui’s housing problem is not really the answer. The problem is too many regulations, not lack of money.
Thank you for the opportunity to testify.
Sincerely,
Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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[1] “State of Hawaii Tax Review Commission: Study of the Hawaii Tax System,” Study conducted by PFM Group Consulting LLC, Sept. 30, 2017, pp. 48-51.
[2] According to IMPLAN, Output refers to “the total value of all goods produced” and value added is a subset of that. See: Candi Clouse, “Output, Value Added, & Double-Counting,” IMPLAN, Feb. 14, 2020.
[3] “An Introduction to the General Excise Tax,” Hawaii Department of Taxation, May 2022, p. 4.
[4] “Hawaii General Excise & Use Tax Exemptions: Tax Year 2021,” Hawaii Department of Taxation, November 2022, p. 3.
[5] Malia Hill, “The case for exempting medical services from Hawaii’s general excise tax,” Grassroot Institute of Hawaii, January 2023.
[6] Melissa Tanji, “Tax could fund projects, but some worry about cost,” The Maui News, June 10, 2023; “GET exemption is ‘low-hanging fruit’ to help fix Hawaii doctor shortage,” Grassroot Institute of Hawaii, Jan. 28, 2013.
