Legislators ignore Ige's lead, introduce dozens of tax bills

Hawaii's economy is on the ropes right now, but that hasn't stopped some legislators from going all in with new tax-increase proposals

From Grassroot Institute 

HONOLULU, Jan. 26, 2021 >> Except for a new "fee" to be imposed on sellers of sugary drinks,[1] Gov. David Ige proposed no new taxes in his package of bills released yesterday at the 2021 legislative session.[2] State legislators, however, have proposed dozens of tax bills so far, and more could be coming.

In response to a query today from the Grassroot Institute of Hawaii, Ige said that "tax increases are not necessary at this time" because the most recent Council on Revenues projection showed Hawaii's economy outperforming earlier predictions.[3] According to institute calculations, the improved economic performance will inject $471 million into the fiscal 2022 budget.[4]

In December, the governor said he was “anticipating that there may be a need for tax increases” and he would be making those proposals when the Legislature opens.[5] However, on Monday there was no mention of new taxes in his annual address — though he could be faced, at the end of the legislative session, with having to approve or disapprove any tax hikes approved by the Legislature.

Keli'i Akina, institute president and CEO, applauded the governor’s decision to forego proposing tax hikes. 

“Gov. Ige is doing the right thing. Hawaii already has among the highest taxes in the nation, and our weak economy cannot withstand more,” he said.

Akina noted that Hawaii businesses already are facing an automatic tripling of their unemployment insurance tax payments, thanks to the coronavirus lockdowns imposed last March that has thrown the state’s economy into its worst depression ever. 

To his credit, the governor has introduced a proposal (SB1159) to let the UI tax rates increase by only 38% for fiscal 2021, 126% for fiscal 2022 and 177% for fiscal 2023.[6] But that would still be too much for many businesses, many of which might have to either defer hiring new workers, let go of current workers or close altogether. 

Akina urged legislators to follow Gov. Ige’s lead on the issue of taxes.

“Our lawmakers should help engineer some relief for businesses from that UI tax increase, but they definitely should not be adding other taxes," he said. "Instead, they should focus on easing the tax load, making it easier for businesses to thrive, generate employment and even generate new tax revenues.”

Whether state legislators will back off on their tax measures remains to be seen, but for now, the many bills they have submitted call for:

>> An 18% income tax hike on individuals making over $300,000 a year (SB56 and HB3).[7] This proposal also would:

Increase the capital gains tax to 11%, up from 7.25%.

Increase the corporate income tax to 9.6%, up from 6.4%.

Double the conveyance tax on $1 million properties.

Repeal more than 30 general excise tax exemptions, such as for construction and interisland shipping.

>> A hike in the top rate to 16% for individuals making over $200,000 a year or joint filers over $400,000 a year, up from 11% (SB276), which would be the highest rate in the nation behind California’s 13.3% on millionaires.[8]

>> An increase in the capital gains tax to 9%, up from 7.25% (HB133 and SB154).

>> An annual tax on vacant homes of up to 5% (HB440, SB 18).

>> A 25% conveyance tax on residential property sold within five years of purchase (SB19).

>> A conveyance tax hike of 233% on homes worth $2 million or more (SB13).[9]

>> A tax on car-sharing, such as with the “Turo” app (SB155, HB333).

>> A tax on Real Estate Investment Trusts (HB283, SB785).

>> A new “carbon” tax and steep increase in the “barrel” tax, which would increase the tax on gasoline to 56 cents a gallon, up from 3 cents (HB460).

>> A surcharge on CEOs making at least 100 times more than the employees of their companies (SB747).

>> An increase in rental car taxes, to $8 from $5 (HB485, HB318, HB483 and SB646).[10]

>> Legalizing and taxing fireworks (HB661).

>> Letting the counties impose a surcharge on the state's TAT or transient accommodations tax  (HB364).

>> Visitor impact fees of $5 (HB295) and $20 (HB523).

>> A 5-cent increase in cigarette taxes (SB138).

>> A proposal to tax e-cigs like tobacco cigarettes and increase the annual seller’s license to $2,500, up from $2.50 (SB63).[11]

>> A liquor tax surcharge (HB771).

>> Eliminating the mortgage interest rate deduction for second homes.[12]

>> Extending and expanding the rail GET surcharge on Oahu (SB990).

Said Akina: “These many tax proposals are out of step with the governor and the people of Hawaii. Lawmakers instead should be finding ways to lower the cost of living, not raise it.”

FOOTNOTES: 

[1] HB994 and SB1148.
[2] “Package Report, Governor,” Hawaii State Capitol, accessed Jan. 26, 2021.
[3] Email correspondence with Gov. David Ige's office, Jan. 26, 2021.
[4] “Grassroot Institute analysis of multi-year financial plan,” Grassroot Institute of Hawaii, Jan. 26, 2021.
[5] “NEWS RELEASE: Governor being coy in new budget about tax increases totaling $1 billion,” Grassroot Institute of Hawaii, Dec. 25, 2020.
[6] “Grassroot Institute UI contribution analysis” Grassroot Institute of Hawaii,
Jan. 25, 2021, sheet 2.
[7] “Grassroot Institute tax analysis of SB56,” Grassroot Institute of Hawaii, Jan. 26, 2021.
[8]  Katherine Loughead, “State Individual Income Tax Rates and Brackets for 2020,” Tax Foundation, Feb. 4, 2020.
[9] See also a proposal to increase the conveyance tax on investment properties. HB624.
[10] SB989 is a related bill.
[11] SB894 is a related bill.
[12] SB723, SB37 and SB202 would eliminate the mortgage interest rate deduction for second homes.