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There’s nothing so permanent as a temporary government measure
By Keli'i Akina PhD @ 5:03 AM :: 1491 Views :: Taxes, Tourism, COVID-19

There’s nothing so permanent as a temporary government measure

by Keli'i Akina, Ph.D., President/CEO, Grassroot Institute, October 31, 2021

Over the past year, I have often expressed concern about the possibility that “temporary” measures taken in response to the COVID-19 emergency would become permanent.

That’s a serious problem when it comes to civil liberties. But we also need to consider the ramifications for the state’s fiscal decision-making. Just like the restrictions on personal freedom and travel, the budget decisions made by Hawaii lawmakers during this period are likely to have serious long-term consequences.

In other words, think of the policies we’ve seen over the last two years as a surprise visit from a distant relative. The first few weeks were fine, but now the visit has gone on for months and he’s still sleeping on your couch. He reprogrammed the remote, drank the wine you were saving for a special occasion, and now he’s talking about his plans for the new year. More and more, you’re starting to wonder if he’s ever going to leave.

It’s the same with our state’s poor budgeting. As 2020 drew to a close, the governor and Legislature were deeply concerned about the drop in revenues caused by the coronavirus lockdowns. In fact, they were so worried that they even brought up the possibility of budget cuts — something that happens in Hawaii only slightly less often than flying pigs.

The Legislature actually did reduce funding for the Hawaii Tourism Authority, which is praiseworthy. But it also made a grab for all of the revenues produced by the state transient accommodations tax, which previously it had shared with the counties. In 2019, the counties received $103 million, or 30% of the total.

Now the counties get nothing. But the Legislature did throw them a bone; they were authorized to impose TATs of their own — up to 3% beyond the state rate of 10.25%.

So now we’re looking at a combined state and county TAT of 13.25%, which will give Hawaii the highest tourism taxes in the country, at least in the counties that follow through on their newly granted tax option. Kauai and Maui have already adopted the surcharge, and Honolulu appears to be on the eve of doing so as well.

In testimony submitted to the Honolulu County Council earlier this month, my colleague Joe Kent of the Grassroot Institute of Hawaii said it was a bad time to be placing an additional burden on Hawaii’s still-recovering economy.

Tourism, after all, is the state’s leading industry; its fortunes affect the health of the state’s economy as a whole. Over the past 20 months, it has been devastated by the lockdowns, and it will take years for it to recover. The Economic Research Organization at the University of Hawai‘i (UHERO) recently forecast that not even by 2024 will visitor arrivals or expenditures return to pre-COVID-19 levels.

Between the struggling economy, the uncertain nature of the COVID-19 regulations, the high unemployment and the state’s confused “destination management” strategy, adding another tax seems particularly ill-advised.

In the case of Honolulu, it is especially disappointing that some of its proposed new TAT revenues might go to the county’s black-hole rail project, which has yet to produce a transparent and sustainable plan for completion and operations. If the Honolulu City Council absolutely cannot resist imposing a TAT surcharge, it should at least take the rail idea off the table, in the interests of keeping its TAT as low as possible.

Ironically, none of this unfortunate budget maneuvering turned out to be necessary. The federal government came to Hawaii’s rescue with emergency COVID-19 relief, leaving the state with a budgetary windfall.

As Kent said Wednesday on Jay Fidell’s ThinkTech Hawaii program, “Community Matters,” the federal funds made it unnecessary for our legislators to take all of the TAT funds. But they did it anyway, and dollars to doughnuts they won’t be giving it back.

Finally, let us not forget that the TAT was originally supposed to be a temporary 5% tax to fund construction of the convention center. Now it’s as much as 13.25%, demonstrating once again that taxes have a way of creeping up and never going back down.

That’s the problem with “temporary” and “emergency” government measures: They tend to stick around, like that annoying relative. Just as we don’t want to see the expansion of executive power become a permanent feature of our lives, we should be wary of seeing the expansion of budgets and new taxes take root.

In the long term, such measures will add to our cost of living and further sap the vitality out of Hawaii’s already endangered economy.

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