Reject HB2629 HD1 or suffer huge conveyance tax hike

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Housing on Feb. 14, 2024.

Feb. 14, 2024, 9:45 a.m.
Hawaii State Capitol
Conference Room 312 and Videoconference

To: House Committee on Housing
      Rep. Luke A. Evslin, Chair
      Rep. Micah P.K. Aiu, Vice-Chair

From: Grassroot Institute of Hawaii
           Ted Kefalas, Director of Strategic Campaigns


Aloha Chair Evslin, Vice-Chair Aiu and Committee Members,

The Grassroot Institute of Hawaii is concerned about the potential economic impact of HB2629 HD1, which would replace the existing tiered conveyance tax rates of 10 cents, 20 cents and 30 cents per $100 for properties valued at less than $600,000, less than $1 million, and less than $2 million, respectively, with a rate of 50 cents per $100 for all homes valued under $5 million.

This would be a 500% tax increase for the lowest tier and a 60% tax increase for homes valued under $2 million.

For properties valued at more than $5 million and less than $10 million, the conveyance tax would be increased to $4 per $100 — an increase of anywhere from about 570% to 440%. For homes valued at over $10 million, HB2969 HD1 would increase the tax rate by 600%, from $1 to $6 per $100 of value.

Only properties valued between $2 million and $4,999,999 would see no change or enjoy a minor tax cut.

Nevertheless, the tax increases in this bill ultimately would affect every level of the housing market.

The most affordable properties would have their conveyance taxes quintupled — a cost that would be added on to the ever-increasing cost of buying a home in Hawaii. Meanwhile, the massive increase in higher-end properties would affect everything from rent prices to the feasibility of large residential developments.

The reality is that the effects of a tax hike cannot be segregated from the rest of the economy. What affects one segment of the housing market will ripple through the state’s housing market as a whole. Put simply, higher conveyance taxes can harm the economy.

For example, a report by the Sage Policy Group on transfer taxes noted that such laws can “lead to decreases in population, real incomes, real estate transactions, investment in structures, and quality of the built environment.”[1]

When applied to higher-value properties, transfer taxes reduce investment in both commercial and residential properties, leading to lost jobs and reduced economic activity.

Further, this measure might discourage adaptive reuse — the conversion of old buildings to new purposes. Hawaii’s counties can leverage adaptive reuse to add to their housing stock, as they are doing now.[2] But higher conveyance taxes could chill the sale of old buildings.

“Many properties will need to be upgraded and/or adaptively reused to remain viable,” the Sage report stated. “Excessive transfer tax rates can frustrate the exchange of property that is often required to return to commercial viability.”[3]

Looking at the even broader picture, one must consider that 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]

Consider these points:

>> Hawaii’s population has been declining for the past six years.[5] Tens of thousands of Hawaii residents have moved to the mainland over the past six years — and mainly to states without income taxes, such as Washington, Nevada, Texas and Florida.[6] Their departure from the islands is not only emotionally distressing, but economically depressing as well.

>> Fewer people remaining means fewer people to work at our private businesses — or even staff our government agencies. It also means fewer people to help pay for Hawaii’s ever-increasing tax burden.

>> Higher taxes for the residents who still live here is more fuel for the exodus of talent and capital — our friends, neighbors and family — to places that are more affordable. It’s a downward spiral economically fostered by the relentless upward spiral of more and more taxes.

>> Hawaii taxes high-income earners at 11%, second only to California at 13.3%.[7] Hawaii’s top 1.5% of taxpayers already pay 34.9% of all income taxes in the state.[8]

>> Hawaii is suffering from a stagnant economy, and both the Economic Research Organization at the University of Hawai‘i[9]  and the state Department of Business, Economic Development and Tourism[10] have predicted continued slow economic growth in 2024. Tax hikes could exacerbate this slowdown, since entrepreneurs would be less likely to invest their capital — or “wealth assets,” as the case may be[11] — in Hawaii’s economy.

In short, Hawaii’s residents and businesses need a break from new taxes, tax increase, fees and surcharges. This is not the time to make Hawaii a more expensive place to live and do business.

This dramatic increase in the conveyance tax proposed by HB2629 would have a negative effect on the affordability of housing and the state’s economy.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1]The Unintended Consequences of Excessive Transfer Taxes,” Sage Policy Group, Inc. on behalf of the Community Coalition for Jobs and Housing, June 2022, p. 3.
[2] Lana Teramae, “Local Architects Talk About Repurposing Existing Buildings in Post-Pandemic Hawai‘i,” Hawaii Business Magazine, Sept. 6, 2021.
[3]The Unintended Consequences of Excessive Transfer Taxes,” p. 3.
[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] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[7] Timothy Vermeer, “State Individual Income Tax Rates and Brackets for 2023,” Tax Foundation, Feb. 21, 2023.
[8]Hawaii Individual Income Tax Statistics,” Hawaii Department of Taxation report for Tax Year 2021, August 2023, Table 12A.
[9] Carl Bonham, Byron Gagnes, Steven Bond-Smith, et al., “State Facing Headwinds as Maui Recovery Begins,” Economic Research Organization at the University of Hawai‘i, Dec. 15, 2023.
[10] Hawaii Department of Business, Economic Development, and Tourism, “Hawaii Economic Growth Remains Low for 2024 as Recovery Continues,” Dec. 11, 2023.
[11] 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.

Subscribe to our free newsletter!

Get updates on what we're doing to make Hawaii affordable for everyone.
Want more?

Get content like this delivered straight to your inbox. We’ll also send updates on what we’re doing to make Hawaii affordable for everyone.

Recent Posts