Tax proposals defy common sense

by Keli’i Akina, PhD, President, Grassroot Institute, March 5, 2021

The Hawaii Legislature may be hard at work, but it looks like common sense is on vacation. That’s the only explanation for the sheer scope and number of tax hikes under consideration this session. 

When your economy is on life support and your primary industry has been decimated, the last thing you want to do is saddle local residents and businesses with more taxes and regulations. 

And yet … against the advice of state economists and the governor, many of our legislators appear eager to raise taxes on our struggling state.

There are a slew of small tax increases that we’ve detailed in previous messages: liquor taxes, conveyance taxes, e-cigarette taxes, rental car taxes, real estate taxes, county surcharges, increased fees.

The sheer number of such proposals suggests that the sponsors of these bills hope to nickel and dime their way to a bigger state treasury.

But there are also bigger tax proposals, like SB56, a smorgasbord of tax hikes all wrapped up in one omnibus and ominous economy-damaging bill.

This single bill manages to include:
>> An income tax hike.
>> A capital gains tax hike.
>> A corporate income tax hike.
>> A conveyance tax hike.
>> “Temporary” repeal of more than two dozen exemptions to the general excise tax.

The author of SB56 said the purpose of these proposed tax increases is to bolster state revenues in the wake of the COVID-19 pandemic and shutdown. But there is a better way to increase state revenues than raising taxes: Pursue strategies that will help grow the economy. 

To put it bluntly: Our state is in such bad economic shape that even a few percentage points of growth would make a huge difference.

Need proof?

Consider the fact that when the state Council on Revenues earlier this year adjusted its forecast upward by just a marginal amount, that was enough to relieve the budget pressures that had the governor talking about tax hikes. 

According to Grassroot Institute projections, if tax revenues were to grow
1% faster than expected this year and next, it would generate an extra
$200 million in revenues by fiscal 2022, or $2.1 billion by fiscal 2027. 

That’s just a modest increase. If the Legislature were to focus on economic growth, that number could double or triple. That would be a far better result for the state than what could be gained through a series of heavy-handed tax hikes.

As we explained in our testimony on SB56, Hawaii is already the state with the second-highest overall tax burden in the country. What many legislators don’t realize is that our state’s high tax burden comes with a lot of hidden costs.

One is our high cost of living — a major reason so many people leave Hawaii for the mainland. High taxes also make the state unattractive to business and entrepreneurs, further limiting our economic growth and diversity. 

If these proposed tax hikes are approved, they will become another obstacle to our state’s recovery from the COVID-19 lockdowns, incentivizing even more flight from Hawaii by those seeking jobs and greater opportunities.

It is never a good time to raise taxes, but to contemplate so many tax increases when so many residents and local businesses are struggling suggests that too many legislators aren’t paying attention to anything other than their favorite budget line items. 

It’s time to defer the tax hikes for the session and get serious about balancing the budget and putting Hawaii back to work. 

Instead of focusing on ways to take more money out of people’s wallets, our legislators need to focus on how to help those wallets get fatter. 

It would be win-win. They would have their increased state revenues and we would have a happier and more prosperous Hawaii.
E hana kākou! (Let's work together!)

Keli'i Akina, Ph.D.
President / CEO