Hawaii taxpayers about to get railroaded?

by Joe Kent, Grassroot Institute, May 11, 2017

Hawaii’s state Legislature ended its session this year with a blitz to raise taxes to pay for construction of Honolulu County’s financially desperate rail project, and, amazingly, all of the rail tax proposals died.

This was, indeed, a victory for taxpayers in Hawaii.

But signs in the media, the Legislature and the governor’s office all point to a special session this summer where the tax hikes are likely to materialize.

One proposal floated before the legislative clock ran out was to increase Hawaii’s hotel tax, known as the transient accommodations tax (TAT). Supporters of the measure promoted it as a tax on tourists instead of residents. However, if the TAT were to be increased, there is no denying that local families would pay, too, through higher prices or lost jobs — or both.

The proposed 30 percent increase in the tax would have raised it to 12 percent, up from 9.25 percent, for the next 10 years, with proceeds to help pay for construction of the rail project. The state Department of Taxation estimated that the TAT increase would generate about $1.3 billion over next 10 years. However, the department didn’t account for the “scare factor” on tourists.

When the Tax Department estimates future tax revenues, it assumes Hawaii’s economy will continue exactly as it has. This static method of modeling does not take into account that consumers may steer away from paying 30 percent higher taxes on hotel rooms. They may, instead, opt to use Airbnb or other home-sharing apps. Some potential visitors may sidestep Hawaii altogether, choosing to having weddings and meetings elsewhere for a fraction of the cost.

The damage to the economy could be great, as Hawaii lawmakers would be further strangling the goose that has been laying the golden eggs. A decline in visitor arrivals would hurt local workers, not only at hotels but throughout Hawaii’s entire tourism industry — and state tax revenues would suffer as well.

Another tax measure that died in the last last session would have extended to 2029 the rail surcharge on the state’s general excise tax (GET) that Oahu residents have been paying since 2007. Some rail boosters have talked about imposing it indefinitely, and even making it statewide!

Of course, the GET itself is harmful enough even without the existing 0.5 percentage point surcharge, because it is applied at every step in the sales chain, sticking consumers with huge financial costs. Though it’s not actually a sales tax, Hawaii’s pyramiding GET was ranked this year as the worst “sales tax” in the nation by the American Legislative Exchange Council, for the effect it has on Hawaii consumers. The harm that the GET surcharge alone has been inflicting on Hawaii’s economy likely has been magnitudes greater than any gains that might be realized someday by Honolulu’s dubious rail project.

Such harm likely has included the exodus of residents fleeing Hawaii’s high prices and taxes, as we’ve written about before. More local families are leaving the state today than ever before, moving to states with much lower taxes and lower costs of living.

With the approach of summer and a possible special legislative session focused on rail, Hawaii residents should be on guard against proposals meant to get the unfinished project off of life support, by way of digging further into local taxpayers’ pockets.

Knowing that higher taxes could cause significant damage to Hawaii’s economy and severely downgrade the quality of life for residents who remain here, Honolulu’s rail project gets harder to justify with each passing day.