Maui GET increase guaranteed to hurt poorer residents

by Joe Kent, Grassroot Institute, July 7, 2023

If the Maui County Council wants to increase the tax burden, risk losing nearly 300 jobs for residents and lower economic output in the county by $49 million a year, Bill 49 (2023) would be a good way to do it.

Proposed by Mayor Richard Bissen and currently under consideration by the Council, Bill 49 would add a 0.5% county surcharge to the state 4% general excise tax rate and presumably generate about $80 million in new revenue for “housing infrastructure.”

Some Council members seem to think the economic impact of what would be a 12.5% GET increase would have a minimal impact on lower-income residents, based on the adoption at the state level of a raft of tax credits under House Bill 954 aimed primarily at individuals and families making under $60,000 annually.

But Maui residents know that earning even modestly more than that amount isn’t exactly living the high life. A family of four making more than $60,000 would likely benefit from only one of the higher tax credits, and even then would probably still end up with higher living expenses because of the new GET surcharge.

Even an individual making $30,000 would receive only $110 from the food/excise tax credit, which the county would then instantly take away through its proposed tax hike.

And let’s not forget that the GET is regressive — as Beth Geisting, director emeritus of the Hawaii Budget and Policy Center once described it — meaning that it affects lower- and middle-income families the most, since they have to spend larger portions of their incomes on food, clothing, transportation and other necessities than higher-income residents.

In addition, according to new research by the Grassroot Institute of Hawaii, the surcharge could cause nearly 300 jobs to disappear — some of which could be held by the low-income individuals that council members are trying to help.

To quantify these impacts, we used an economic modeling software program known as IMPLAN. We modeled a $60 million tax increase on Maui households, assuming the other $20 million would be paid by the tourism sector — based on the finding by the state Tax Review Commission that 75% of the GET is paid by locals.

The model shows that the surcharge would cause economic output to decline by $49 million because residents would have less money to spend after paying higher prices for food and everything else.

That might mean they don’t get the healthcare they need, which could cost the healthcare industry $4 million and 26 jobs, according to the model. Or they might eat out less, or order cheaper items, costing the restaurant industry $3 million and 26 jobs.

The tax hike would eventually result in a drop of 280 jobs, primarily from restaurants, healthcare, tenant housing, individual and family services, retail and personal care services, according to the model.

Regarding the belief that the surcharge is needed to fund “housing infrastructure,” there are several things residents and the Council should keep in mind.

First, the county is already collecting a lot more in taxes. In the upcoming fiscal year, the county will be collecting about $100 million more in property taxes than the current year, during which it collected about $50 million more than the year before that. The county clearly has the money to pay for “housing infrastructure” without a new tax.

More important, the best way to encourage new housing is not to tax and spend, but to reduce regulations on homebuilding. Maui County has among the highest levels of homebuilding regulations in the country, according to a University of Hawaii Economic Research Organization brief, so tinkering at the margins via a tax increase to fund government-managed “housing infrastructure” programs is sure to be less effective than just allowing private homebuilders to do what they do best — build homes.

Also, ironically, an increase in the GET could affect rental prices, which doesn’t say much for a tax that ultimately is supposed to help lower housing costs.

Reducing housing prices, of course, is a good goal — which Mayor Bissen and the County Council should energetically pursue — but making life more unaffordable for everyone is not the best way to do that.