Why Hawaii costs so much — and what we can do about it

from Grassroot Institute of Hawaii,

The following commentary was originally published in the Hawaii Filipino Chronicle on Dec. 3, 2023.
___________

It is common knowledge Hawaii has a high cost of living. Whether we’re talking about buying groceries, paying utilities or just keeping roofs over your heads, Hawaii is always at or near the top of the national rankings for cost.

When you visit the mainland, it’s always hard to believe how much cheaper a gallon of milk or gasoline costs. Even our turkeys are much pricier. The centerpiece of our holiday dinners costs an average of $52.85 in Hawaii, but only $27.30 in Louisiana.

None of this is surprising. But instead of chalking it up to the “price of paradise,” we should be asking ourselves why it is so. There is nothing intrinsic about beautiful surroundings and lovely weather that causes high costs.

So why is that the “price of paradise” in Hawaii is so high?

To some extent, it is our remote location in the middle of the Pacific Ocean, because nearly everything we buy has to be shipped in. Making that even worse is a 1920 federal law known as the Jones Act, which requires all goods imported from the U.S. mainland to be on ships that are U.S.-built and flagged, and mostly owned and crewed by Americans.

According to a 2020 study commissioned by the Grassroot Institute of Hawaii, this archaic law costs the average Hawaii family nearly $1,800 per year. So everyone pays a bit more to live in Hawaii solely because of the Jones Act.

But there are other policies that add to our cost of living.

For example, Hawaii’s tax burden is among the highest in the nation. Yes, our property tax rates are low — but that is canceled out by the state’s high property values, leading to Hawaii property owners paying close to the national average in property taxes.

Hawaii’s property values are high because of the state’s shortage of housing. Fewer homes in the face of strong demand means Hawaii has the nation’s highest median home prices — and also some of the highest rental rates for renters.

Why does Hawaii have a housing shortage? Because of its plethora of regulations related to land use and homebuilding — the most in the country, in fact.

In addition, Hawaii ranks highest or nearly highest in terms of personal income tax rates; it has a regressive general excise tax — similar to a sales tax but levied at every transaction level; plus it has many other state and county taxes that seem to grow more numerous every year the Legislature or county councils are in session.

Not surprisingly, the National Tax Foundation recently ranked Hawaii’s “business tax climate” at 42 — with 1 being the best. To every extent possible, short of going out of business, local merchants pass on their high taxes to consumers, which means a higher cost of living for those of us who buy from local businesses.

Meanwhile, Hawaii lawmakers at all levels of government are constantly piling on new regulations that add to the cost of doing business — minimum-wage laws, unemployment insurance tax laws, operating standards, required signage, more fees… it all adds up in the end.

The irony is that many policymakers believe that more taxes are the only way they can keep up with the bigger budgets that they themselves have authorized. It is a tax-spend-tax spiral in which their budgets keep going up — and so do our taxes.

The sad result has been an exodus to the mainland of residents searching for greater opportunities and a lower cost of living elsewhere, while those of us who remain become a smaller and smaller pool of taxpayers who have to cover the state’s ever-growing level of spending.

Fortunately, Hawaii can still pull back from the brink. All our lawmakers have to do is spend less, lower taxes, reduce regulations and address other factors that contribute to the cost of living, such as all the red tape that holds back homebuilding.

Hawaii may never be as inexpensive to live as most mainland states, but we do have the ability to lower the cost of living. In short, the solutions are there, if only our politicians will have the courage to embrace them.