Targeting scapegoats affects us all

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii

One of the most persistent myths in Hawaii politics is that you can target a single group with a tax hike and not affect anyone else.

But that’s not how an economy works. Increasing taxes on one group has a way of rebounding on the rest of us.

Lately, a favored target has been short-term rentals — which are being scapegoated for everything from high housing prices to the lack of beds for Lahaina residents displaced by the horrific August 2023 wildfires.

On Kauai, county lawmakers are poised to increase the property tax rates for short-term rentals by 15% to 23%, with rates for the most valuable properties exceeding even the county’s hotel and resort tax rate.

On Maui, STR tax rates could be going up anywhere from 6% to 26.5%.

On Oahu, the Honolulu City Council is still working out the details of its new STR tax class, so STR owners are nervously waiting to see what will happen.

Hawaii County doesn’t have an STR tax class — yet — and I hope it remains that way. 

But in any case, many Hawaii policymakers seem to view STRs as an inexhaustible cash cow, forgetting that many STR owners are members of the community who make up a significant part of our economy.

According to a 2020 study from the Hawaii Tourism Authority, STRs contribute about $6 billion to the state economy and sustain 46,000 jobs. You cannot further burden or phase-out such a significant part of the visitor industry without affecting people’s livelihoods, the local economy and county revenues.

Nevertheless, the Kauai County Council’s Committee of the Whole agreed to hike the rates for STRs and hotel and resort properties.

During the committee’s hearing on the measure, STR owner Jane Obramo from Hanalei testified that higher taxes could push out multi-generational homeowners who no longer could afford to stay in their homes.

“Homeowners are going to sell their homes and sell their condominiums, and they are going to sell their multi-generational homes … [but] not to you, not to our community. I can't afford to buy my own house anymore,” she said.

Other residents testified that higher taxes would force them to cut back on operating costs, which ultimately would cost other people their jobs and harm the local economy.

Lesley Sherman, manager of Sweet Paradise in Poipu, talked about the 63 people that her company employs in the service of local STRs. But if prices go up or occupancy drops, she said, “you don't need as many housekeepers, ... maintenance people, … front desk reservations people, … marketing people. It's all of the above.”

Sue Kanoho of the Kauai Visitors Bureau pointed out what has seemed obvious all along — that the tax hike would further increase the cost of a Hawaii vacation at a time when the industry is already suffering.

“We're starting to lose visitors to other places because they don't feel welcomed here,” she said.

These aren’t insignificant concerns. Research demonstrates that high tourism taxes make destinations less attractive to visitors. Additionally, tourists compensate for higher costs by reducing their spending. That means less money spent on tours, souvenirs, restaurants or other local amenities and attractions.

Local businesses and homeowners already face enough challenges in the effort to stay afloat in paradise. So why would we further want to threaten their livelihoods by increasing property taxes?

As my Grassroot Institute of Hawaii colleague Jonathan Helton explains notes in testimony being submitted ahead of the Council’s final vote this coming Wednesday, the apparent motivation of the increase is to support housing construction.

He explains, however, that there are better ways to address Kauai’s housing problems — such as by simply removing some of the many regulations that hinder Hawaii homebuilding in the first place.

Making it easier to build homes would cost the county nothing and nullify the alleged need to increase the island’s property taxes to collect revenue for housing construction.

Perhaps the counties could follow the the state Legislature’s lead in reducing Hawaii's tax burden, which it did recently in unanimously approving Gov. Josh Green’s plan to cut the state income tax by almost 70% by 2031.

Hawaii lawmakers at all levels should be looking for ways to lower our high cost of living, encourage economic growth and stem the state’s years-long population exodus — not trying to increase taxes on scapegoat groups that will wind up negatively affecting us all.

E hana kākou! (Let's work together!)