Tax relief in Hawaii isn’t just affordable, it’s vital

by Keli’i Akina PhD, President/CEO Grassroot Institute

Hawaii was blessed recently with the great news that we will be enjoying some significant state income tax cuts that could leave as much as $5.6 billion in our pockets through 2031 and possibly fuel much-needed economic growth.

Nevertheless, some people have been expressing doubts about whether the state can really afford it. In particular, they worry that our lawmakers will try to pass a bunch of tax hikes next year to make up for it, or else make big cuts in essential government services.

My take is that, yes, the state can easily afford the tax cut without needing to raise taxes or enact any major budget cuts — and I say that as a firm believer in smart, responsible budgeting.

The Hawaii Council of Revenues recently estimated it expects state tax revenues to total about $9.5 billion this year, increase by 4.8% next year, and then grow by between 3.5% and 4.5% each year after that for the rest of the decade.

At that rate, Hawaii’s tax revenue will total about $12 billion in 2030, which means there will still be almost $11 billion to cover the state’s services and obligations, even after factoring in the $1.2 billion taxpayers will save in 2030 due to the tax cuts.

These are just estimates, but barring any major disasters, the state’s financial future seems relatively solid.

Yes, tax revenues could drop lower than anticipated over this period. Still, it’s even more likely that economic growth spurred by the tax cuts will result in higher tax collections for the state and counties.

It might seem counterintuitive, but extensive research shows that states can actually increase tax revenues by reducing the tax burden and spurring greater economic activity. Think of it as the Walmart solution — things cost less, but Walmart makes it up in volume.

If nothing else, the tax cuts will help lower the cost of living, which could help stem the tide of people leaving Hawaii for better opportunities on the mainland — a trend we should fight for many reasons. For one, every resident who moves away leaves one fewer taxpayer to shoulder the cost of state government.

Meanwhile, let’s not forget that, as a rule, there is always room to slim down the state budget. In fact, we’ve already seen that state leaders are willing to cut spending.

For example, the governor cut approximately $1 billion from the Legislature’s proposed biennial budget last year. This year, when concerns about the cost of rebuilding Lahaina prompted a new look at the budget, some lawmakers suggested across-the-board budget cuts of up to 15% and reductions to grant-in-aid funding.

When Gov. Josh Green signed the tax cuts into law, he mentioned that the state government has about a 30% job vacancy rate, adding that “we’re doing a deep dive into the costs that we have on the books that maybe shouldn’t be on the books.”

All of this suggests that state lawmakers realize there is plenty of wiggle room in the state budget to accommodate things considered a priority.

In the case of these historic tax cuts, if our policymakers want to make sure they work for the benefit of the people, they should go easy on future spending and avoid any new boondoggles. Maybe they could even throw in a few more tax reductions.

Only in that way will Hawaii become more affordable and fulfill its potential as a place where we all can thrive and prosper.

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Commentary first published on July 12, 2024, by the Hawaii Filipino Chronicle.