3-21-23 Seth Colby, Joe Pluta and Joe Kent on Gov. Josh Green’s 2023 tax plan
Joe Kent: Well, Aloha, everyone. Thanks so much for coming today. My name is Joe Kent and I’m the executive vice president of the Grassroot Institute of Hawaii.
And if you’re new, the Grassroot Institute is a 501(c)(3), nonprofit research organization, and we focus on educating about individual liberty, economic freedom and accountable government. And today, we’re going to be talking about taxes.
The Grassroot Institute often advocates for lower taxes, and Hawaii has many of the highest taxes in the nation in many areas. And so, we were just overjoyed when we heard people in the administration — the governor — talking about that he wants to reduce taxes. I mean, when was the last time you heard any politician talk about reducing taxes? So we have to give kudos where kudos are due.
This would be one of the biggest tax reductions in the history of the state — if not the biggest — if it goes through, because there’s other politicians involved here, of course. You’ve got the Legislature, and the governor’s tax plan is being heard there.
But, of course, we’re really interested in this because thousands of Hawaii residents have fled to the mainland over the past six years because of Hawaii’s cost of living. And statistics show that more native Hawaiians live on the mainland now than in Hawaii.
And again, a lot of that is because of Hawaii’s high cost of living, and some of that comes from taxes.
So we want to hear about the Green Affordability Plan today, also known as GAP. But I also want to introduce a new employee to the Grassroot Institute; his name is David Patterson, he’s over here. Thank you.
[applause]
David is our media producer. And he has a long media background, but we’re producing videos by the way, explainer videos, and this video of this event will be aired on Akaku. So if you want to talk to David about, “Hey, can you edit me out of the video?” or something like that, you can ask him that.
But also, if you have a strong opinion or an opinion about something that you heard today, or about taxes in Hawaii, we would love to hear that on camera. So if, after the event, you want to share your opinion, just talk to David.
And again, we’re trying to create explainer videos to show how to explain these issues in a way that folks can understand.
So today, we’re going to again learn about the governor’s tax plan, and we’ve got the governor’s tax economist here to do it. Seth Colby is the tax and research planning officer at the Hawaii Department of Taxation, a role he’s held since moving to Hawaii in 2017.
Prior to that, he spent several years researching economic development in Latin American countries, and he also spent four years working with the Peace Corps in El Salvador.
Seth did his undergraduate work at UC Davis and has a master’s degree and a Ph.D. in development economics and international development from the Johns Hopkins School of Advanced International Studies.
Now, we have a tax expert. And I also wanted to invite a taxpayer expert [laughter] that’s Joe Pluta. Joe is, yeah, go ahead.
[applause]
And let’s give a round of applause for Seth, too.
[applause]
Joe is the president of the West Maui Taxpayers Association. You’ve probably seen him around Maui many times. and he has 30 years of experience as a licensed real estate broker. He grew up in Chicago but moved here after serving in the Navy, and he graduated from UH and is now a member of the University of Hawaii’s Alumni Hall of Honors.
Joe also serves on numerous boards and community organizations on Maui, including the Lahaina Rotary, the West Maui Improvement Foundation and Church on the Go Inc.
So, we’re going to start, though, with Seth. And I would just want you to give us an overview of this plan from the governor and what that means for folks in the state. So won’t you welcome Seth Colby, please.
[applause]
Let me make sure this works here. Oh, sorry.
Seth Colby: Hi. Aloha everybody.
Audience: Hello.
Colby: It’s a pleasure to be here. I do not get to come to Maui very often, mainly because it’s the most expensive island to visit. But I do feel like the sun and the air is different here than on the other islands. So, it’s an honor to be here.
Again, so I am, just to reiterate who I am and explain my role within the state, is I work at the Department of Taxation. So that’s Department of Revenue in a lot of states. And within the Department of Taxation, there is a group of economists and researchers that have access to all the state’s tax records, and we do research on that.
So we peruse a lot of statistical reports, we work on the macroeconomic forecasting for the state. So, what do we think the revenues will be over the budgetary window, which is six years for the state of Hawaii? I work a lot with the legislatures and the governor about tax proposals, right?
And so, one of the things that we do is, we try to help them understand the economic consequences of the laws and things that they’re proposing. So right now, as a legislative session, we’re very busy grading and providing revenue estimates for a lot of the proposals that are out there.
One of the major proposals that is on the list is the Green Affordability Plan. So this is a[n] initiative by the governor and he came in and what he really wanted to do is he wanted to come up with a tax plan that would benefit a large majority of the Hawaii taxpayers.
And we’ll talk about this in a minute, but there’s this group in Hawaii that gets a lot of cachet called the ALICE families, which is “asset limited, [income] constrained [and employed].”
Kent: Asset limited, income constrained, yeah.
Colby: Yeah, income constrained, which basically means working families that don’t make a lot of money or, you know, working families, and this just depends on the definition between, you know, that make between $50,000 and $100,000, $120,000. And this is for two people, right?
So one thing I’m going to ask you guys to do, and I’m going to present a lot of income statistics, right? And so when we’re dealing with taxes, this is actually pretty complex, right? Because, you can be a single filer, a joint filer.
Most of what I’m going to talk about today is for a family of four, right? So that’s joint filers, dual-income family, right?
So you can think of, you know, most people in Hawaii especially coming up, they’re not single-income families, they’re usually dual-income families. So when I say $100,000, that’s not a $100,000 salary. It means two people working together make $100,000. So it could be 50 and 50, or 90 and 10, but it’s important to think about this.
Anyway, so to get back to the Green Affordability Plan, this would be the largest individual income tax reduction in the state’s history.
This is a unique time in the history of the state, because we have a surplus, right? So before COVID, we were bringing in about $7.4 billion in revenues annually, tax revenues, and now we’re closer to [$10 billion], right?
So that’s a big increase, right? We saw a 30% increase, although even if we don’t grow very much going forward, we’re starting out with what we call and, you know, numbers from a larger base.
And this has created a lot of problems. Good problems, but, you know, they’re socking away lots of money into the rainy day fund. They’re putting money into the pensions — maxing them out, in fact. And, so, they’re trying to figure out what to do with the rest of the money.
Now maybe you guys have heard of the constitutional refund, where every single taxpayer within Hawaii either received a $100 or $300 per exemption last year, and that was $320 million. Essentially, this tax plan is the equivalent of an ongoing constitutional refund. So $320 million every year.
So that’s what we’re looking at — and this is one of the big decisions in the state — is, like, you know, should the state use the money, or should taxpayers … should we remit some of the money back to the taxpayers? And that is a political decision.
I should say I am involved in that political decision by offering economic analysis of everything, but I am not a proponent one way or the other.
So my role here is more of the economic analyst than a proponent of anything. But since I do work for the government and I do work for the governor, this is probably his premier initiative for this year, so I’m going to go over that.
So what is, like, the fundamental … or when thinking about his tax initiative, he wanted to think about a couple of things. He started off thinking about 42% of families within Hawaii have challenges making ends meet.
And there’s two levels of this. There’s people living in poverty, and that’s the federal poverty line, which is around $34,000 for a family of four. And 9% of households in Hawaii live below the poverty line, and that’s a serious issue.
And then there’s another group, which we’re calling ALICE families, that live above the poverty line. They do not get as many social services as people living below the poverty line, but they’re still struggling to make ends meet.
So we all live in Hawaii, I couldn’t imagine trying to raise a family of four on $50,000 a year. It’s going to be incredibly difficult, right? I don’t even know that you could pay the rent for $50,000, or it’d be very difficult to pay the rent for just $50,000 here.
So these families are the primary focus of what the GAP plan is trying to go after. And, you know, as Joe has, kind of relentlessly mentioned that there’s a lot of people who are choosing to move away from Hawaii because they feel like there’s a lack of economic opportunities and the costs are rising.
And so how can we support local families?
Well, the solution was the GAP plan, right? And the idea is to increase income assistance, which is when you reduce your tax liability, or we can even remit some money too, via tax credit.
We’re really boosting their incomes. It’s going to be mainly focused on people in the ALICE range, so that’s the $35,000 to $100,000, right?
And we’re going to provide tax relief for working families. But also this initiative really focuses on working parents as well, and we’re going to go over that the rationale for doing so.
So this is our current tax credits based on income level, right?
And so this is the food/excise tax credit. We have the earned income tax credit, we have a number of tax credits that …and this is just tax credits for increasing social welfare. We have other tax credits like the renewable energy tax credit that’s really designed to promote certain industries within Hawaii. But this is what it looks like.
And so I’ll just go over here real quick, but down here are the low-income households. These are incomes by deciles.
So this is $208,000. If you make over $208,000 as a joint filer, you’re in the top 10% of all taxpayers within Hawaii. If you’re taking less than $21,000, you’re in the lowest 10%, right? So take a look at that.
Now, one of the things that we want to focus on is most of our tax credits are really focused on the lowest-income taxpayers, which is fine. However, there’s a lot of political interest in supporting these people in the middle range, which is the ALICE range.
So that’s what we’re going to do. And there’s essentially four pillars to the GAP plan.
One is to support struggling families. And the GAP plan would actually quadruple income support for families making less than $45,000 a year.
And under the initiatives, I’ll just mention really quickly, which is double the food excise tax credit, increase the low-income renters credit and increase EITC [earned income tax credit].
The second one is going to support working families. And these are kind of like the ALICE households. So that’s going to increase the credit for low-income renters, double the personal exemption, increase the standard deduction, and we’re going to do some inflation indexing.
I’ll go over all this little bit more in the future. I only have 10 minutes, so this is very difficult to explain a $350 million tax plan in 10 minutes, but I’m going to do the best I can.
And we’re going to support working parents, especially mothers. So this is a pretty unique aspect.
So there’s a Child and Dependent Care Tax Credit that is posed in the GAP plan, which would allow a family of two to claim credits against childcare, up to $20,000. So a person can receive a refundable tax credit of $10,000, if you have two or more kids and you’re paying for childcare.
And the initiative here is — and this is kind of a recognition of the changing nature of our economy — is there’s a huge proportion of women that are working in the workforce right now, right? But they also tend to be the mothers.And, unfortunately, this puts an unusual burden on the female participation.
So, for example, during COVID, females were much more likely to drop out of the workforce than males. So this is an attempt to really help working-class mothers, help mothers to stay within the workforce.
Now, here’s another thing. It’s, like, you’ve all heard this statistic that women make 70% less than men. According to the research, it’s not like somebody walks in and sees a woman and says, “I’m going to pay you 70% less.” No, it’s because women tend to drop out of the workforce to take care of their kids, which I have a mother, thank God, right?
And they drop out of the workforce to take care of their kids for seven years and then they reintegrate. But anybody who has a seven-year gap in their professional career is going to start off at a disadvantage.
So this tax credit is really to incentivize women to stay in the workforce, or at least give them the option to do something.
And then we have another aspect, which is supporting our teachers. Which was teacher supply credit goes up to $500.
So, I’m not going to go into the technical details of any one of these credits a lot, because I don’t have time, but here’s a list and this is the cost of each one of these credits.
And if you look down at the total it’s about $315 million a year, right? Which is about the size of the constitutional refund [from last year]. You guys, presumably, they’re going to have access to these slides?
Kent: Oh, yes.
Colby: So these are, kind of, like proposals of where and when and how these different tax credits work. If you guys have questions in the Q&A, I’m happy to address these, but I’m going to go over this relatively quickly in order to respect your time.
So again, this is the existing tax credits, right? This is what happens after we pass the GAP bill. And what you can see is there’s a lot, one, for the lowest-income households, the blue bar, the lowest blue bar, are the existing credits, right? But you’ll really see a lot more income support to the lowest incomes but also to the people in the middle income group, right?
And that was the intention from the governor. And what you’ll see is different tax credits and different initiatives help households at different parts of the income spectrum, right?
So the yellow is the EITC, which is the earned income tax credit. There’s consensus that it’s the most effective poverty-alleviation tool available at the federal level, and we have adopted that, right? And so a lot of states have also adopted that. But it really focuses on the lowest-income people, right?
And it really helps single parents as well. Right now we’re looking at a family of four, but it really helps single parents.
Now you’ll also know, like, if we double the personal exemption, it helps everybody all the way across, right? So you’re really providing income support for different levels of the income spectrum. And that was the intention in the design and the strategy of the Green Affordability Plan.
One of the things you do when you’re looking at tax policy, is you go and you do everybody’s taxes for them. And taxes are very unique. All of you guys have a different tax liability, because each one of you have different jobs, property taxes; it’s very difficult to come up with, like, “Oh, this is exactly what’s going to happen to everybody, in averages.” But what we do is, we just take examples.
And so these are families of four by income quintiles, right? So lowest 20%, the highest 20%. And we see what would be the impact of their tax liability, or how would that benefit their income before and after the tax plan?
So, if you look at the lowest 20%, they would receive an additional $2,000 — $2,213 — a year under the Green Affordability Plan. Now, this is a family of four and at the low income. So that represents 20% of their income. You can see that, 19.4[%].
And it is a progressive initiative, in that lower-income households receive more tax credits relative to their income, right? And that was the governor’s intent. However, everybody would get a tax reduction under this plan, every single Hawaii-based taxpayer.
So you can go see all the way.
But like $2,000, and $3,000 in some cases, that’s a paycheck, right? So we’re really talking something substantial for a lot of the taxpayers in Hawaii.
This is a graph to show how the total Hawaii tax burden, and that includes GET. lt does not include all-state Hawaii reductions, alright? So that includes GET, that includes your gasoline taxes, that includes your excise tax, alcohol tax, tobacco taxes.
And what you can see is like, you know, in Hawaii, which is a very progressive state, there’s a big issue with regressivity or progressivity, right? And so progressivity is the idea that higher-income people pay a larger percentage of their income, relative to lower people, right?
Not more taxes, because even in a regressive system, if somebody makes like $500,000 a year, they’re usually going to pay more in absolute money, like $10,000 or $15,000, than somebody who’s making $20,000, right?
But this is the whole ability-to-pay phenomenon, right? So within the United States, there’s a political belief that, like, the more wealthy you are, the more ability you would have to take on a greater burden of society and pay more taxes. And that’s progressive taxes.
And, you know, sometimes you hear people say, “Oh, the GET is inherently regressive.” What they mean is, it’s not like … higher-income people pay way more GET than lower income, right, because they have more money to spend.
But what it really means is GET is regressive, because they’re spending more of their money on the GET relative to their income, low-income earners.
So when you see a slope that goes up into the right, you have a progressive tax system. The slope in the upper right-hand side, or the red line, I’m sorry, is our existing tax system.
One of the other proposals that was on the agenda that costs about the same amount of money was exempting food and drugs from the GET, or groceries and drugs from the GET.
So just as a reminder, we already exempt prescription drugs from the GET, so it’d be mainly groceries and over-the-counter drugs. The dotted line is the tax reduction that you would see from the elimination of GET in groceries and over-the-counter [drugs], so it helps, but nothing compared to the Green Affordability Plan.
Why is that? One, 30% of our GET is paid by non-residents. So mainly tourists, and we have a huge active military population that are not residents of Hawaii, and they pay GET. Whereas 93% of our individual income tax is paid by residents, right?
So if you really want to target residents, it’s much more effective to go through the individual income tax than help with GET.
So we’ll see is, the GAP affordability thing really makes a difference. This is just another way to look at it. This is the tax burden in absolute terms, right?
So you’ll see the top 20% pay the, you know, disproportionate amount of taxes in Hawaii. And the red line is our current system of taxation.
The purple line, it would be the proposal to exempt food and medicine from GET.
And the third is the GAP proposal.
So what you’ll see is the reduction is much larger for the GAP proposal versus the GET proposal.
I’m going over this really quickly but I do want to … there’s different elements of the GAP plan that we have thrown in or that are incorporated in there. And I just wanted to highlight some, so you guys can understand this. This is from my conceptualization of the impacts of the GAP plan as an economist, right?
So on one hand, there’s certain elements of updating the tax code. And this is increasing the standard deduction.
All of you guys have done taxes, presumably, where you can either itemize your deductions and you can take the standard deduction. Compared to at the federal level, we have very high standard deductions. It’s around $15,000 to $20,000, depending on different things. In Hawaii, it’s $4,000, right? So it’s much lower.
In this proposal, we would increase the standard deduction to $5,000 for single filers and $10,000 for joint filers. So what that does is, like, higher-income people tend to be able to itemize their deductions more, because they have more things to itemize.
So increasing the standard deduction really benefits, like, kind of, middle-income taxpayers, right?
You’re also increasing the personal exemption. So what that does is, like, it really disproportionally benefits families and people if you’re claiming more exemptions.
And we do have a limitation on itemized deductions in Hawaii. So, like, at one point — I think it’s if you make over $166,000 — we start to, like, limit the amount of itemized deductions. That was put in place from a law. That limitation comes from a 2009 IRS code. And so what we’re really doing is we’re just updating it to the most recent years, to something like 2020.
And then we’re going to do the inflation indexation. So inflation indexation is actually one of the smallest things in terms of, like, the budgetary impact over the next several years. But I would argue it’s one of the most structural changes to Hawaii.
So, at the federal level, they adjust their brackets every year to inflation, but in Hawaii, we do not.
So every year, so, like, for example, I work for the state, right? So I get a cost-of-living adjustment once in a while. That is not intended to be a raise; it’s intended to reflect the fact that life is a little bit more expensive every single year, right?
But every single time I get the cost-of-living adjustment, I get more and more of my income bumped up into higher income brackets, right? And eventually, that happens to everybody.
So, just to put things in perspective. So before 2017, the highest tax bracket in Hawaii was 8.25%. For a single filer, that goes into effect at $48,000.
Why is that? That seems really low, right? Most of us would not think $48,000 is qualified for the highest income. That’s because in the 1980s, $50,000 was a great income, right? But now it’s not.
And so, by indexing the whole individual income tax code to inflation, essentially you’re not bumping everybody up into higher and higher tax brackets every single year.
So, maybe next year you’re not going to feel it very much, but over the next 30 or 40 years, it really does, makes a big difference, right? And this goes back to one of the, kinda like, the more fundamental things about taxation, right?
So generally in democracies, we’re like, OK, you want to raise our taxes? Fine, explain to us what you want to use the taxes for, and we agree to that, right? And usually there’s some kind of policy in democratic debate about whether raising taxes versus lowering taxes.
But when you do this thing through inflation, people do not have the ability to vote on that. That’s basically a tax increase every single year. So, most people, tax advocates, argue that inflation and indexation is very important. Most states do this, that have individual income tax. Hawaii is not.
So this is actually a really big part of the tax reform that doesn’t get a lot, it’s kind of technocratic, but from my perspective, it’s a really big impact. And it’s been a recommendation of just about every single Tax Review Commission since its beginning.
So, and then, there’s also the income support, right? So we’re saying we’re going to redistribute money, and some families are suffering more than others, right? And so that’s why we’re boosting the EITC, which is earned income tax credit. We’re increasing the food/excise tax credit. There’s a low-income-renters credit that’s quite meaningful, right?
And then again, because we’re increasing the standard deduction, personal exemption and itemize everybody, especially people in the lower-income spectrum, are going to really see their tax liability decrease.
And then you have the, kind of, mitigate cost inflation, right? So childcare has gone up more in price than average inflation, right? And so this is the governor’s attempt to address that specific issue.
And then you’re trying to support teachers, right? So there’s just, kind of, like four big things to think about when you’re thinking about the GAP plan, and it is super complex.
Well, it’s not complex to me ‘cause I deal with it all day, right? But you talk to most people and they’re like, “Oh, this is so complex. I can’t deal with this.”
The reason it’s complex is because our economies are complex and there’s different people all around the world; we’re dealing with 1.4 million people, 750,000 taxpayers, all have different meanings. And in order to construct something that really is what the governor says he wants to do, you have to use a bunch of different levers.
And this may be complex, but at the end of the day, what people really care about is the amount of money in their pocketbooks, right? They don’t really care if, say, you know, it comes from the standard deduction or adjusting the rates. What they really care is, “Oh, I have a thousand extra dollars.” And for a family of four that can really make or break something, right? And so that’s what the GAP plan achieves
Kent: Well, Seth, I want to wrap this up.
Colby: Yeah, I just got one last slide and then we’re done. So the GAP plan was introduced. We’re in the legislative session — you can’t see this very well, but the green box at the top is HB1049, which was the Green Affordability Plan, right?
So the governor can propose legislation, but it’s up to the Legislature to pass legislation and see it through.
What has happened is, so we’ve gone from the House to the Senate, and what has happened is they’ve actually divided the Green Affordability Plan into essentially three different bills.
On the one hand is HB954, which they’ve increased their EITC by an undefined rate. And then they’ve put all the increased the standard deduction, the personal exemption inflation deduction, in one.
Then on HB1049, which was where the bill was, they’ve kept all the tax credits, which is the low-income-renters credit, and the teacher supply credit and the child and dependent care credit.
And then the food and excise credit is actually in HB493. And that has actually been structured, so it’d be more like a constitutional refund. So everybody would get it below a certain income threshold, and it would be more of a rebate than a tax.
So that’s where we are within the Legislature.
This is an ongoing, moving target, but I just wanted to give you an update with that. And with that, I will …
[applause]
Colby: Thank you.
Kent: OK, so thanks so much for that, Seth. And I want to get a reaction from a taxpayer expert, Joe Pluta. So, Joe, actually if you could keep your comments short, then we can get to Q&A about all this plan. But maybe about five minutes, a reaction to this generally. So go ahead. Here you go.
Joe Pluta: OK. Aloha, everybody, thank you for coming here today.
[applause]
Kent: Yeah.
Pluta: So I’ve already been introduced as a taxpayer. Every time somebody mentions lowering taxes, we’re thrilled, we just love to hear, that’s music to us, that’s not something we’ve heard a lot about. So I’m impressed that the governor’s plan is proposing to reduce taxes.
How much is being done, I guess is maybe not the way I would prefer it to be done, but if anything at all — I’ve been here 43 years, I’ve learned that anytime the state wants to do something for you and Maui, be excited and happy, because it’s harder to get that. Well, it shouldn’t be, but it is. I mean, so the reality and what should be and what it is sometimes is in conflict here.
So, but I’m thrilled, I’m very impressed with this analyst and his presentation of his facts, and figures, he has done a great job and I commend that the government’s got a resource like that to utilize, and I want to thank the Grassroot Institute for allowing this to happen.
Kent: Good.
Pluta: More later.
Kent: Good. Yeah. OK. Thanks, Joe.
[applause]
OK, well I’ve got a few questions here.
So my first question goes to Seth. So, you mentioned that, you know, there’s a surplus, but how big, actually, is the surplus right now? And, you know, into the future, how big are they projecting it to be?
And what about all this talk about recession that we’re hearing in the past few weeks? Any comment there? And, by the way, yeah, the mics, you really have to eat them, yeah. So go ahead.
Colby: Can you hear me alright? No. Can you hear me alright now?
Kent: Now you’re good.
Colby: So, first caveat, my job is not to monitor the budget of Hawaii. That is the role of Budget and Finance. I work for the Department of Taxation, which looks at revenues. Budget and Finance is the one that says we have adequate spending and we have an adequate budget.
So I’m going to just parrot what I’ve heard the Budget and Finance say.
One is, yes, we do have sufficient money. They do stress-test their budget.
Right now, they’re hitting the maximum they can in terms of putting money away at the rainy day fund, they’re putting money at the maximum level they can for pensions and for healthcare costs, liabilities for state workers.
And just recently, two weeks ago, the Council on Revenues, which is the council that officially sets the revenue expectations for the state — and that’s constitutionally mandated, you cannot change that — they lowered the revenues by $2 billion over the next six years, which is our budgetary window, and B&F [Budget and Finance] still says it’ll comfortably pass this cut line.
Kent: Oh, I see. So even with a consideration of a downturn, we still have a surplus, enough monies to pass a tax cut, or tax reduction. Great.
So, Joe Pluta, what are you hearing from taxpayers on the ground on Maui when it comes to the cost of living and perhaps the need for tax reductions?
Pluta: Thank you, Joe. Most people on Maui don’t understand any of this [laughs], and we’re hearing very little from anybody, taxpayers, about specifics whatsoever. And, you know, they don’t understand it, but it’s music to their ears about anything that’s going to lower taxes.
Kent: Great. What about the cost of living on Maui?
Pluta: Oh, no, that’s our concern. We know that it’s got to be — if Maui is not the most expensive place to live in the United States, it’s got to be in the top 10 for sure. No question about that.
And with that cost of living being that high, you know, you have people who are very concerned, and especially when it comes to the fundamental things, like housing has been one of the biggest ones, and people being taxed out of their homes.
Kent: Seth was talking about the ALICE population, which again, is the asset-limited, income-constrained-but-employed folks; they’re in the middle. And they would see … and Seth, correct me if I’m wrong, it almost seemed like they would see more tax rebates than they would pay, right? They would get more back than they would pay. Is that correct?
Colby: For the lowest two quintiles, they would receive more back. Yes. They would receive a tax refund, individual income tax refund.
Kent: I see.
Colby: For the higher incomes, like, basically, once you start to get to $50,000, you would still do that, but it would lower the tax liability for them disproportionately. But again, everybody would get a tax break.
Kent: OK, got it. So, Joe, when it comes to that group that would get money, how do you think they would respond, and how would that affect their ability to, you know, live here?
Pluta: Well, in West Maui, we don’t have a lot of that income because they can’t afford to live in West Maui to start with. We’ve got over 10,000 cars on the road coming from Central Maui to West Maui every day for people coming to work on that side but can’t afford to live there, so they live here in Central Maui and elsewhere.
So this impact, overall, to the actual people in West Maui, which is my whole world — I mean, not that I don’t care about the whole County of Maui — but West Maui is like an island by itself and we’re so isolated out there, and people forget about us and yet we generate over 50% of all the county revenue, from West Maui. So we’re a significant revenue producer, but we don’t get a lot back.
Kent: I want to talk about that aspect a little bit later. But for Seth, are you able to see … you’re an economist, and are you able to kind of look into Hawaii’s economic future right now and give us a snapshot of what you might see, or is that kind of out of scope for you? What do you see in your crystal ball for us?
Colby: The economic forecast — OK. Lots of things are happening in the world, right? We have bank failures, we have artificial intelligence coming in, like, in ways we don’t know. So nobody really knows what’s going on, right?
But I will tell you what the forecast is. And the forecast is for a mild recession in the next few years. And Hawaii will probably fare a little better than the rest of the United States, mainly because of tourism. And we are still seeing the recovery of tourists to Hawaii, particularly international tourists, and that should mitigate things for Hawaii.
Kent: So, the main thing that I think about when it comes to this tax plan is I see that there’s two paths forward. There’s two roads.
One road is saying that, “Oh, we might have a recession, and if that happens, then we can’t afford to cut taxes because we need the money to pay for, you know, to help support the state and help support the economy and everything.” So, that’s one road.
The other road is, OK, we may have a recession and so even more so, we need to cut taxes so that we can inspire more economic growth and a stronger economy. So actually, this question is for both of you. Which road do you think is the more effective path towards a sustainable economy?
Colby: Well, that is a false dichotomy according to the Budget and Finance, they say we can even have a recession and cut taxes.
Kent: We can have a recession and we can cut taxes?
Colby: Yeah, and the reason for that is before the crisis, we were bringing about $7.4 billion in tax revenue and now we’re at $9.8 [billion], right? And the state has not ramped up spending commensurate to the increase in revenues.
Kent: I see. So there’s enough money [laughs] to cut, is what you’re saying.
Colby: Yeah, and, you know, if you increase spending, spending at the government level tends to be sustained, right? So you hire somebody, once you start spending money at the state level, it’s very hard to, like, hire somebody or say, “Oh, we can’t afford this.”
Even if you build a road, essentially maintaining the road costs the same amount as building the road. So there’s still a lot there, and so they just haven’t ramped up spending to match the revenues.
Kent: What about, Joe, when it comes to the fear of cutting because of recession and reduced revenues or, you know, the need to cut, so that to help our economy and send a green light towards business and all that, which road path would you take?
Pluta: I would take the road to get rid of government regulations and get out of the way and let the economy take care of itself.
[applause]
Kent: OK, wonderful. Joe, I want to go back to that concept that you mentioned before at the county level, where you were mentioning that, on the West Maui, there’s this view that tax revenues are going to pay for the rest of the county. Do you think that’s a view of many folks on West Maui and what would they rather the taxes be paid on?
Pluta: Well, again, West Maui has got such a mix of absentee property owners. That’s why the West Maui Taxpayers exist to kind of represent the collective interest of all those absentee properties. They don’t vote, [and] because they don’t vote, they don’t get the attention of our Legislature, our government leaders, like we should get — it’s not commensurate to our income-producing capacity. But do we vote or not? Are we going to impact the election?
The decision-makers seemingly are unaware of the importance of preserving and maintaining an incredible tax base and providing the infrastructure and services that are needed to keep that going.
Kent: I see. And when it comes to going back to the county for property taxes, do you view Maui’s property taxes as high or low, and which way should they go?
Pluta: Well, they’re absolutely, certainly high. It is the assessed value. It’s not so much the rates. Everybody always looks at what their tax rate is, how much dollars per thousand. But when you look at the average assessed values, that’s the key.
You know, for the median property, a single-family home now is over $1 million for a single-family home. And for condominiums, it’s close to $800,000 as a median price. So, when you look at West Maui, and you look at those prices and see what it’s comprised of, that generates a tremendous amount of … and it really went up. And COVID showed that Hawaii’s “mo’ bettah.” [laughter] And a lot of people want to come here now.
Colby: Can I make a counterpoint to that?
Kent: Yeah, sure. Absolutely.
Colby: So, even Hawaii property taxes, when you combine state and local taxes together, Hawaii property taxes make a much lower contribution to overall tax payments relative to the average in the United States.
So, I know we do have low … I mean, objectively speaking, there’s what I feel and how much I pay, and what the statistics say. Statistics say that our property taxes are actually low, lower than the rest of the United States.
Kent: So, the rates are low. Joe argues the values are high, and then where that hits in the middle, right, is a matter of opinion. But also, I think it’s lower than the average property tax, in any case, paid on the mainland.
However, county property taxes here don’t go to fund the schools, and that’s a key difference as well.
So, now that we’ve really wonked out about taxes, I would like to open it up to questions from the audience, and I’m going to borrow one of your microphones if you can share, and I’ll just go into the audience here.
- We have a question over here from Rick. Here you go. Rick Nava?
Rick Nava: Aloha, can you hear me?
Kent: Yes.
Nava: Hi. I’m Rick Nava. So my question is, you know, all of this tax credit that you mentioned, the problem to me with that is that people need to pay the rent monthly. If they have to wait for the tax credit until the end of the year to get all of that, you know, when your landlord is knocking at your door to pay your rent, you know, that’s going to be difficult.
Also, you know, the thing that I’ve been asking about — and this was a big issue during the election when people came to Lahaina — is the Jones Act. I feel that the Jones Act could make a big difference, you know, in our cost of living right here.
And then I was looking at your report here, your second tier of decrease actually is higher than your first.
So anyway, I know I have three questions there, but my big one is that, you know, we’re waiting for the tax credit, people need the money now. So how do we help those people? Thank you.
Colby: Yeah, that’s a great question. So the strategy, if this were to pass, and the tax credits were to pass, it would be a PR (public relations] initiative to help people. Because you can adjust your withholdings. And so by adjusting your withholdings, you can actually get your taxes now. So that’s one way that people can receive that money ahead of time.
And the current strategy on the table is to — if this all passes, right, we don’t do anything until it’s signed, sealed and delivered — then we go out and we say, “Oh, you can adjust your withholdings to reflect that you will have a lower income tax liability.”
The Jones Act is, that’s probably true, totally without … that’s a national-level issue. It’s just not a state-level issue.
And then looking at … you’re absolutely correct that the people who would gain the most are, kind of, like the second-lowest quintile and that is true. And that’s just because, right now, most of the tax credits are really focused on the lowest income. And like, under the proposal, we’re expanding the generosity of the credits to the first- and second-lowest quintiles.
Kent: I want to open up to another question, but I had a question about “cliffs,” is, if you make more but does the tax plan make it such that if you make more, you could get less because if you made less, then you might make more from the tax rebate?
Colby: Yeah. Fiscal cliffs, or tax cliffs, are always an issue when you’re providing generous tax credits. However, we have structured all the tax credits so they’re gradually phased out, so there are no cliffs.
Kent: Oh, I see. OK. Any other questions here? Yes. I’ll go back there. This is from Sue Lucie. Go ahead.
Sue Lucie: Isn’t there a law that says you’re required — you being the government — required as the government to rebate excess taxes back to the taxpayers?
Speaker 5: Can you hear her?
Colby: No.
Speaker 3: You got to hold it closer.
Kent: Can you restate the question?
Colby: OK. So the question is: Isn’t there a law that says that if we collect revenues in excessive, we should do that. There is a law. And every single year the Legislature has figured out a way — except for, like, three — figured out a way to get around that. So it is not an ironclad law.
The one law, just to put this in perspective, because Oregon has that law and it is ironclad. And I’ve talked to all of my colleagues in Oregon and it is so hard to administer it, it’s so hard to have a budget coherence, and everybody gets back, like, $3.
So, all I’m saying is, it sounds like a great law in principle, but sometimes in practice, it’s not. It doesn’t turn out to be quite as great as it sounds to be.
Kent: That’s right. I think once upon a time in Hawaii every taxpayer got a dollar [laughs] because of that rebate but, you know, the $300 or so that folks got last year, that partly was because of the law, but it’s partly because of sort of a political initiative as well, would you say?
Colby: Correct. Right. So, that was a political decision by Gov. [David] Ige to remit those taxes and provide a constitutional refund. They used that law to remit those taxes, but oftentimes they don’t. And the reason for that is, essentially, the state is collecting more than the Legislature knows how to spend at this point.
Kent: OK. Is there any other questions here? OK. Over here. This is from Bart Smith. Go ahead.
Bart Smith: Yeah. My question is; Where did that money come from, the way they have such a surplus? And then: When you get people used to getting this tax credit or whatever, what happens when you run out of the money? And the third question is: Why are teachers paying for supplies out of their own pockets?
Colby: What was the first question?
Smith: The question is where did that money come from and what happens when it runs out?
Colby: Where this money came from is people are paying more in taxes. People are paying more in taxes because there was a massive fiscal stimulus at the federal level where we all received money, and it’s going through the economy, higher inflationary levels. So, when inflation goes up, taxes automatically go up, right? Because everything is price-denominative with dollars. And so that’s the answer for where’s this money coming from?
What happens when the state, according to Budget and Finance, has enough money to pay for these taxes in perpetuity. So once they pass, there’s no plan to take these tax credits away.
Kent: OK. Well, we can end it there unless there’s one more question or so, but I do want to give our panelists a round of applause here. Thank you.
[applause]
And I’m applauding, you know, Gov. Green in my head, too, about this tax plan. Now, let’s look at the legislators, though, to see if they see the value in this.
If you’d like to get involved in advocating for this, or talking to your legislator or anything like that, make sure to contact us because we’re definitely trying to advocate for tax reductions.
And if you have an opinion that you’d like to get on camera about the need for tax reductions or how taxation is, in general, or Hawaii’s cost of living, see David after the show. We’d love to get your comment on camera, which we’ll use in a really good way.
So, thanks so much for coming.
Oh, yeah, you have … Are there cards here today? Oh, yeah, there are cards on everyone’s table. We want to know how we did. We always want to improve. So if you’d please fill those out. And thanks so much for coming, and aloha.
[applause]
