Hawaii taxpayers deserve a rebate — a big one

by Keli'i Akina, Ph.D., President / CEO Grassroot Institute of Hawaii

Imagine your brother was facing a bad financial situation. 

Things looked bleak for a while, and the family came together to help him out. Eventually, he got through it, thanks in part to generosity from his siblings. Now, not only is he out of trouble, but he has money to burn. What would you tell him to do with his extra funds?

Chances are you would tell him to pay down his debts, put some away for a rainy day and give some back to the family that helped him out. 

The last thing you would suggest is that he go shopping or spend it on a few shiny new toys.

It’s basic economic common sense, and it applies just as much to our state government as it would to the hypothetical brother.

Just over a year ago, things looked bleak for Hawaii’s finances. The coronavirus lockdowns had devastated our lives and economy. Lawmakers were expecting drastically lower revenues and preparing for major budget cuts. In the panic, they seized the counties’ share of the transient accommodations tax and hoped that federal relief funds would help bail the state out of its financial crisis.

At the time, my colleagues and I at the Grassroot Institute of Hawaii repeatedly advised lawmakers to focus on policies that would grow the economy. Under the circumstances, even a slight bump in the economy would have led to a dramatic increase in revenues.

And that’s just what happened when the state finally did start opening up the economy. Tax revenues started pouring in, and now the state is sitting on a surplus of $4 billion. 

Simply allowing the market to operate helped create a windfall in state revenues, though there were other contributing factors, such as the funds from the TAT, the $750 million the state borrowed and added to the budget as “revenues,” and $1 billion in federal relief funds.

There also is the current inflation rate of 7.5%, which is boosting tax revenues due to businesses increasing their prices and thus paying more in taxes.

What is going to happen to that surplus? Will it be used responsibly or will it be spent on our ever-expanding state budget?

As the legislative session draws to a close, this has become the $4 billion question.

At the beginning of the year, Gov. David Ige called for a tax refund of approximately $100 per taxpayer. The Grassroot Institute applauded the idea, but suggested that the refund be substantially increased so that approximately $1 billion of the windfall be returned to the people.

After considering and rejecting a different refund bill, the Legislature has returned to the issue in SB514. But the amount of the refund remains undecided.

On Thursday, the Honolulu Star-Advertiser quoted the institute’s testimony on the bill, in which we reiterated our support for a higher refund:

“‘The governor hoped to add about $110 million to the economy via a refund of $100 per taxpayer and dependent,’ said Joe Kent, the organization’s executive vice president. ‘However, we suggest that, given the amount of its budget surplus, the state return at least one-third of the windfall, or about $1 billion, to the taxpayers. That would equal approximately $1,361 for each of Hawaii’s 734,673 taxpayers. As we noted, the state can afford to do far more than a mere $100 each for Hawaii taxpayers, who have gone through so much in the past two years.’”

In addition to giving money back to taxpayers, the state should also pay down some of its unfunded liabilities. After all, $750 million of that windfall is borrowed, and paying it off earlier will save us money in the long run. 

Some of the money could also be used to pay down the state’s unfunded pension and health-benefits debts. Think of it as investing in the future. This way, our children and grandchildren won’t be stuck with a higher bill.

Then there’s the rainy day fund. If we have learned anything from the lockdowns, it is the importance of having a healthy rainy day fund.

Some legislators claim that the refund has to be small, due to federal rules about how coronavirus recovery funds are spent. Those rules restrict the states from using the funds to offset a reduction in taxes. 

However, two recent court cases — Ohio v. Yellen and West Virginia v. Yellen — have successfully challenged the mandate at the district court level as an unconstitutional overreach of federal power. The cases are now at the appellate stage, but the early wins suggest that Hawaii lawmakers should not be shy about returning some of the windfall to the people.

Pay your debts, save for a rainy day and give back some of the excess. It’s as true for the state’s windfall as it would be for any of us. 

Just because the state’s budget goes into the billions of dollars doesn’t mean our lawmakers should not be held to the same principles of responsible spending and saving as the average family — especially when the money they are spending comes from our pocketbooks in the first place.