What Happens in Vegas...Moves to Vegas

by Tom Yamachika, Interim President, Tax Foundation of Hawaii

Most of us have heard the line, "What happens in Vegas, stays in Vegas." Sure, Nevada is a nice place to visit, but would you want to live there? Some people have said yes; among the reasons for their decisions is the tax. Specifically, the lack thereof. Nevada doesn't have a personal income tax. For that matter, neither does Florida.

Whatever the reason, according to the 2000 U.S. Census Bureau, between 1995 and 2000 roughly 12,000 people moved from Hawaii to Nevada, and about 1,850 moved from Nevada to Hawaii. Not sure what the trend is today, but if people are fleeing the state for kinder, gentler tax regimes then we should be concerned.

In 2009, our legislature told us that we were facing a crisis in our state's finances. We taxpayers were all asked to dig deep, in terms of revenue enhancements including 9%, 10%, and 11% income tax rates coupled with hard limits on the itemized deductions that many of us in the 8.25% and higher brackets (which kick in at a net income level of $48,000 for a single taxpayer) rely upon. Both the higher brackets and the deduction limits are set to expire on December 31, 2015, five years after they went into effect, but in this state taxes that start off as temporary often times end up becoming permanent. (The other individual tax change in 2009, taking away the deduction for state taxes for those in higher income levels, wasn’t temporary and is still with us.)

There are seven states that don't impose personal income tax. The reason why they don't is that their state government gets enough money from other things. Alaska gets lots of revenue from severance taxes, when oil is taken out of the ground. Texas is in the same boat. Nevada and Florida rely on sales taxes, many of which are "exported" because they are borne by tourists. The other three states without individual income tax are South Dakota, Washington, and Wyoming.

Here in Hawaii, we also have lots of tourists like Nevada and Florida. We have the general excise tax that is imposed on all business activity including rentals and services, so the tourist industry certainly doesn't get a free ride. In fact, it has been estimated that roughly a third of our general excise tax revenues are exported, namely paid by tourists. Then why is it that we not only have personal income taxes, but at tax rates putting us among the highest taxed states in the country? According to the national Tax Foundation, Hawaii’s top rate of 11% ranks 2nd highest among states levying an individual income tax.

Should we care? If we create a climate where we squeeze our population more and more whenever times get tough, we may find that people don’t stick around. If that happens, the same size government will get too big very quickly, if it isn’t already there. And the cost of running the government will need to be distributed over fewer heads, which normally means each resident is going to have to pay more even if the cost of government does not increase. Definitely not an attractive trend.

Next year, when our legislature convenes, there will be a bill proposing to extend the "temporary" individual tax hikes put into place in 2009. You can bet on it! And that bill will be considered by lawmakers who don't face an election until the fall of 2016. However, we have elections coming up now, so we can make choices as to who will be considering these issues. Have these candidates given any thought to how we can take care of our residents and not motivate them to pack up their bags and leave? Choose wisely!

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