Tale of the Tape

by Tom Yamachika, President, Tax Foundation Hawaii

When we analyze how well, or how poorly, our economy is faring in response to the COVID-19 pandemic and then try to craft appropriate corrective action, we often hear the buzzword “data-driven.”

”Data-driven,” in general terms, means we want a strategy that is backed with some kind of data, or numbers, as opposed to being a qualitative judgment based on God knows what.

But we need to be very careful in choosing the data we rely upon. “There are three kinds of lies: lies, damned lies, and statistics,” the saying goes.

One way of tracking economic activity in our state is by looking at tax collections. The good news is that the Department of Taxation publishes statistics on tax collections, and has recently launched a series of data dashboards to summarize the data it collects. Its “Collections Portal” page reports that general fund fiscal year to date collections are $2.274 billion (through Oct. 31, 2020), down 8.0%.

Eight percent doesn’t sound too bad, does it?

But there are a couple of things to remember. The “down 8.0%” compares fiscal year to date collections, so it’s comparing July through October 2020 with July through October 2019. Does four months out of the year give anyone an adequate idea of economic activity? Second, it compares only money that went into the general fund. Lots of the money funding our government comes from elsewhere, such as federal funds and special funds. Many of our taxes are earmarked, so the money we collect goes into special funds and isn’t counted in the comparison. Further, as we wrote about back in May, the earmarking can and did change. Transient accommodations tax money that was supposed to feed the counties and the Tourism Authority got rerouted to the general fund, making the general fund collections from that point forward somewhat rosier.

To try getting a little closer to what is actually happening to our economy, we looked at the General Excise Tax. It’s imposed on all business so it should be a reasonable proxy for business activity. Here is what actually came in the door for the past three years:

Source: Department of Taxation, Collection Reports

The blue bars are 2020 collections. Beginning in May or so, there is a lot of daylight between the mark hit in 2019 (orange) or 2018 (gray), and each grid line on the graph is $50 million.

We also compared the GET collections for the twelve months ending in October 2020 with the twelve months ending in October 2019. The numbers are $3.135 billion and $3.595 billion respectively, a decline of 12.79%. A chart comparing the trailing 12 months of collections shows that the year-to-year decline steadily increases the more pandemic months are factored in:

Unsure of the data? Check it out for yourself. Now, does anyone think we don’t have a problem here?