Bill 49 (2023): Maui GET surcharge could eliminate jobs, reduce growth

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Maui County Council on July 18, 2023.
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July 18, 2023 9 a.m.
Maui County Council Chamber

To: Maui County Council
      Alice Lee, Chair
      Yuki Lei K. Sugimura, Vice Chair

From: Grassroot Institute of Hawaii, Joe Kent, Executive Vice President 

RE: Bill 49 (2023), CD1, FD1 — Relating to instituting a general excise tax surcharge

Comments Only

Dear Chair and Committee Members:

The Grassroot Institute of Hawaii would like to offer its comments on Bill 49 (2023), CD1, FD1, which would add a 0.5% county surcharge to the state’s 4% general excise tax for the purpose of funding “housing infrastructure,” including “pedestrian paths or sidewalks on a county road near or around a public school, water, drainage, sewer, water reuse, waste disposal and waste treatment systems that connect to the infrastructure of the county.”

The Institute is concerned that this measure would drive up the cost of living for Maui residents. According to an analysis we conducted using the economic modeling tool IMPLAN, Maui County could stand to lose 280 jobs and $49 million in economic output because of this higher tax. 

By eating into the slim profit margins of existing businesses, a higher GET also would discourage other businesses from setting up shop in the county, including private practice physicians.

Finally, the county’s housing woes could be better solved by reducing the number of regulations on homebuilding. Though this bill is well-intentioned, it is not the best way forward. 

Attached to this testimony, you can find an explainer that describes the possible economic impacts of this bill in more detail.

Thank you for the opportunity to testify.

Sincerely,

Joe Kent
Executive Vice President
Grassroot Institute of Hawaii
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The economic impact of a 0.5% general excise tax increase on Maui County

The Grassroot Institute of Hawaii used IMPLAN to calculate the economic impact of a 0.5% increase in the general excise tax on Maui County, which the model showed could cost the economy 280 jobs and $49 million.

IMPLAN is an input-output modeling program that uses government data sources to perform input-output analysis, a common type of macroeconomic analysis. It is frequently used in studies commissioned by Hawaii’s state and county governments.

For our analysis, we modeled a $60 million tax increase on Maui households, assuming the other $20 million would be paid by the tourism sector.

That assumption is based on the finding that 75% of the general excise tax is paid by locals.

This is an induced effect, meaning since Maui residents would have $60 million less in their pockets, they would have fewer dollars to pay for goods and services on Maui.

The results show a drop in employment of 280 people, primarily from restaurants, healthcare, tenant housing, individual and family services, retail and personal care services.

That might mean they don’t get the healthcare they need, which could cost the healthcare industry $4 million, and cost 26 jobs, according to the model.

It could also mean they don’t go out to eat as much, or they order cheaper items, costing the restaurant industry $3 million and 26 jobs.

And so on.

The tax hike ripples in this way throughout the rest of the economy, from car washes to child daycare services, eventually costing the economy $49 million and over 280 jobs.

The table below shows the top 30 industries affected by a scenario in which the general excise tax on Maui county was increased by 0.5%.

Top 30 Maui industries affected by 0.5% general excise tax increase