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Hill points out uneasy truth about tourism in Hawaii

The following commentary was first published on March 18, 2024, in the Honolulu Star-Advertiser.
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No matter how you feel about tourism, the reality for all of us is that it’s the state’s biggest industry and the source of much of our income.

Even jobs and industries that aren’t directly linked to tourism can be affected by it. So when tourism suffers, everyone in Hawaii feels the pain.

That’s why we should be suspicious of proposed tax increases that claim to be aimed solely at tourists.

On the surface, the appeal is obvious: “We can get a bunch of money from people who don’t live here. Locals won’t have to pay, and we can spend it on whatever we want.”

Unfortunately, that’s not how economies or taxes actually work.

For starters, it’s impossible to have a tourism tax that completely excludes residents. As the discussion over last year’s failed visitor-fee proposal demonstrated, taxes aimed at only nonresidents carry significant constitutional consequences.

This year, the state Legislature has attempted to correct that problem by instead proposing ways to increase the state’s transient accommodations tax (TAT). But it’s important to remember that a TAT increase would also fall on locals who travel interisland for medical, family or business reasons, or simply enjoying a “staycation.”

A TAT increase also would affect doctors or nurses traveling here on a temporary basis to provide medical care, or professionals such as contractors and trade workers who might be traveling here to help with reconstruction after natural disasters.

That’s not all. A 2017 study from the European Union — not generally known for being against taxes — warned against tourism tax hikes for coastal and leisure destinations because it found that higher tourism taxes get passed on through higher prices, which affects the overall competitiveness of that destination.

And before you think Hawaii will maintain its appeal regardless of cost, consider that a study of tourism taxes in the Maldives — another unique island destination that relies heavily on tourism taxes for its revenues — found that a 10% hike in tourism taxes reduced inbound tourism demand by 5.4%.

So, don’t just take it from me: Higher tourism taxes do result in fewer tourists.

But maybe you think that higher taxes would only filter out lower- spending tourists.

Again, not so fast. Visitors work within budgets and make adjustments accordingly. According to a 2019 study in the Journal of Destination Marketing & Management, tourists to the United Kingdom compensated for higher airfare taxes by spending less on their food and accommodations.

In other words, tourism taxes reduce overall visitor spending. Hike the TAT and Hawaii’s tourists will compensate by spending less at restaurants, purchasing fewer souvenirs, or cutting back on tours, boat trips or other outdoor activities.

Making Hawaii less competitive as a tourist destination and reducing visitor spending would inevitably affect all local businesses and, in turn, the state economy as a whole — including tax revenues.

Hawaii already has one of the highest tourism tax burdens in the world, yet lawmakers are still trying to get that golden goose to lay a few more eggs.

At this point, trying to squeeze more money out of tourists would hurt local residents more than it would boost state revenues.

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