Election year or not, higher taxes are on the Legislature’s agenda

by Keli’i Akina, President/CEO, Grassroot Institute, February 19, 2022

Watching proposed tax hikes make their way through the Legislature has become an annual tradition in Hawaii, like fireworks on the Fourth of July or hearing Christmas carols at the grocery store in mid-November.

There is actually no need to raise taxes right now, especially given the state’s $3 billion budget surplus. But raising revenues is no longer the primary rationale for the tax increases being proposed. Instead, lawmakers want to use taxes to bring about social change. 

Some tax bills seek to discourage certain behaviors, such as using fossil fuels or drinking alcohol. Others are purely redistributive in nature, like the bill that would create new income tax brackets and drive Hawaii’s top marginal income tax to 19% — the highest in the nation. Or the proposed “wealth asset tax,” which would levy a 1% tax on the global net worth of individuals with more than $20 million in assets.

Whatever the motivations, the problem with these tax bills, according to Tom Yamachika, president of the Tax Foundation of Hawaii, is that they would have “a lot of ramifications … which I don’t think people are thinking about so much.”

Yamachika was my guest on this week’s episode of “Hawaii Together” on ThinkTech Hawaii. As usual, Yamachika stays busy during each legislative session analyzing the many tax proposals, then explaining to the public their many possible ramifications.

For example, he said, the proposed massive increase in the state’s so-called carbon tax, intended to wean Hawaii consumers away from fossil fuels, “would result, predictably, in a very large increase at the [gas] pump.”

While that is bad news in itself, there hasn’t been enough consideration about how significantly higher fuel prices would affect consumers and businesses in the islands as a whole. 

“If you think you have it bad now commuting from one part of the island to the other,” he said, “think about if you’re a truck driver. That’s your business, and while you may not pay the bill, it’s going to be a heck of a lot bigger bill.”

Or consider the proposed constitutional amendment that would let the state join the counties in taxing real property. Those who don’t own a home might think that higher property taxes aren’t their problem. 

But, said Yamachika, “it’s going to affect you whether you are renting somewhere, whether you own your own house or if you’re in an apartment. Basically, the issue is that the cost of just staying somewhere is going to increase.”

As for all the bills seeking to soak “the rich,” hikes in the state’s personal income tax, corporate income tax or capital gains tax, if enacted, would still affect the little guy. 

“If you, for example, penalize somebody who has a business with a hundred employees, he’s not going to just stand there and take it,” explained Yamachika. “He’s going to pull out more money from the business to cover the tax, which leaves less for the employees or higher prices for the consumers or both. … Or, the person says, ‘I don’t need this, I’m getting out of Dodge. I’m going to jump on a plane, and I’m out of here.’ So the business moves, the jobs move, and what happens to us? Well, we lose the revenue.”

Even “sin” taxes, like the proposed surcharge on alcoholic drinks, could have effects that our legislators might not realize. 

“When you … find a cause that depends on that sin tax — for instance, using a tobacco tax to fund a school of medicine or a cancer center — the tax causes some people to stop smoking, but that means revenue goes down,” said Yamachika. “Then the [supporters of the] causes being supported by the sin tax panic, wondering if [the revenues] are going to disappear. Their answer is to raise the tobacco tax even more.”

While the supporters of these different tax proposals might be swept away by ideological considerations or the allure of playing Robin Hood, we need to keep reminding lawmakers that tax hikes have real economic consequences, like discouraging investment and raising the cost of living.

That’s why we continue to urge that the Legislature ditch the tax hikes and focus on policies that will make Hawaii more affordable — like reducing regulations, removing barriers to housing and cutting taxes and fees.

Taxes should not be used as a policy tool to shape public behavior. All they do is make Hawaii more expensive and increase the number of people leaving our state for better opportunities on the mainland.
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Keli’i Akina is president and CEO of the Grassroot Institute of Hawaii.