Spending restraint tagged as best way to protect 2024 state tax cuts

from Grassroot Institute

The best way state lawmakers can help the people of Hawaii is to protect the historic income tax cuts that took effect this year, according to Joe Kent of the Grassroot Institute, who said they can do so “by keeping a lid on spending.”

Kent joined H. Hawaii Media radio host Johnny Miro on Sunday to discuss the state’s finances and budget outlook following the release of Gov. Josh Green’s record-high $20 billion spending plan for fiscal 2026.

“We have billion-dollar surpluses right now, and that’s a lot more than we usually have,” Kent said. “So we’ve got money in the bank, and we’ve got money to fund the government, and we have money to go back to taxpayers.”

Kent said Miro’s listeners should already be seeing a bump in their paychecks thanks to the tax cuts passed unanimously by the Legislature and signed into law by Green last year. 

The average taxpayer, he said, is expected to pocket an additional $1,000 to $2,000 by the end of this year, Kent said, with those savings growing each year until 2031 when they are expected to amount to a cumulative savings of about $20,000.

“That means that the government might need to reduce its spending. It might have to tighten its belt and so on,” Kent said. “And that’s a good thing by the way. The government should tighten its belt, and the money should go back to taxpayers.”

And the money going back to taxpayers won’t be a total loss to the government, Kent explained, because of the “dynamic effect” that happens when people spend that money and it still winds up getting taxed elsewhere. 

He noted that the state’s Council on Revenues “thankfully is also recognizing the fact that those monies could benefit the economy too and come back on the other side.”

RELATED: Spending restraint essential to protecting state tax cuts | Grassroot Institute of Hawaii 

TRANSCRIPT

1-12-24 Joe Kent interviewed by radio host Johnny Miro of H. Hawaii Media 

Johnny Miro: Happy to have you along this Sunday once again. I’m Johnny Miro. It’s time for our H. Hawaii Media public access programming at our five Oahu H. Hawaii media radio stations and five radio stations located on the island of Kauai, available via smart device at hawaiistream.fm at Live365. 

And we’re going to be discussing the state budget update. A lot of big money being, well, talked about as far as the spending plan of Gov. Josh Green. He just released his record-high $20 billion spending plan for fiscal 2026. 

I’m going to discuss that with Grassroot Institute of Hawaii’s executive vice president, Joe Kent. Good morning to you, Joe. Thanks for calling in once again. Looking forward to the great insight.

Kent: Good morning, Johnny. Thanks for having me.

Miro: All right. $20 billion spending plan for fiscal 2026. The question is, can we really afford it here, taxpayers afford it? And I guess we’ll find out if the budget is in the green or in the red. Which way are we leaning that way, green or red?

Kent: Well, it’s looking green right now, not to make another pun. You know, our governor’s name is so unfortunate with these puns, but it is green. And that’s because the money coming in is less than the money going out, at least if you count the surplus. And we have billion-dollar surpluses right now. And that’s a lot more than we usually have. So we’ve got money in the bank, and we’ve got money to fund the government, and we have money to go back to taxpayers. So there’s just a lot of money going around.

Miro: All right. What are the big spending items and initiatives looking like this year? The big spending items and initiatives, what are they looking like?

Kent: Well, you’ve got to be careful whenever you look at what lawmakers say the big spending initiatives are. They’ll say things like, you know, $500 million for housing and infrastructure or $100 million dollars for a school here or there. But the biggest ticket items are the debt and the unfunded liabilities, which are usually called fixed costs. That means money that you can’t change. 

So we spend a billion dollars every year on the public pension retirement system. $1 billion goes to debt and debt service — that’s like paying off the state’s credit card. A billion goes to the health benefits fund for government workers, and a billion goes to Medicaid and healthcare entitlements. 

So that’s a huge chunk of the budget. One-half of the whole general fund goes to basically debt and benefits.

Miro: I didn’t really know about those numbers. So $4 billion. All right. How will tax cuts, how will these tax cuts, Joe, that Gov. Josh Green signed last year affect the 2026 budget?

Kent: Well, up and down. When taxes are cut, then revenues — the government sees taxes as revenues, they call them tax revenues — so when a tax cut happens, then the tax revenues for the government go down because that money’s not there anymore. 

But at the same time, the money, where did the money go? It goes into the pockets of taxpayers, right? And taxpayers spend their money in the economy in a lot of different ways. And that money is then taxed, and it goes back to the government. So it’s kind of funny how sometimes when you cut taxes, you actually get some tax revenues. 

And the Council on Revenues — those are the people in government that are trying to predict how much revenues we’re going to get — they are accounting for that effect of taxes actually leading to revenues. 

So it’s going to affect the revenue somewhat, but not enough to, you know, run screaming from the hills or anything like that. At the end of the day, we still have enough money to pay for all of the so-called needed things in government, even with the tax cuts. And the tax cut is a big one too.

Miro: Yeah. On a federal level with the recent tax cuts and prior to that, the revenues that came in are continuing to be record numbers. It’s just the spending has exceeded the revenues that have come in.

Kent: Yeah, that’s right.

Miro: So we’ll see what happens here locally. 

Joe Kent, the executive vice president with Grassroot Institute of Hawaii. Grassrootinstitute.org for more on that. 

What are people saying about the tax cuts and this current budget situation, Joe? Do you get the sense that the legislators want to increase taxes?

Kent: Well, when it comes to the tax cuts, I like to listen to the regular people. And what I’m hearing — you know, my wife and her office, you know, that works here in Hawaii, and just everyday people are looking at their paycheck; actually, you, listener, anyone listening to this; check out your paycheck because the tax cuts are here. They should be already programmed into your, you know, the taxes that are taken out of your paycheck already, such that now your take-home pay should be a little bit higher today. 

But you need to remember to multiply that number by all of your paychecks throughout the year and try to figure out how much it’s actually going to save you annually. And that number turns out to be at $1,000 to $2,000 per taxpayer on average. And the number grows and grows every year. 

So just think about, you know, a couple thousand dollars. What could that do to everyday people in Hawaii who are trying to afford the cost of living? 

So I think lawmakers who passed that tax cut — unanimously, by the way, and the governor signed it last year — they are a little hesitant to start imposing tax increases or to take that tax cut back because they want to see, OK, how is this actually going to affect the economy and what is it going to feel like when it actually hits pocketbooks?

Miro: I didn’t know that, by the way. Totally slipped by that we were getting the tax relief already. That’s OK. Great news, folks. What’s the percentage on that? Where did it go from and where is it right now based on the new year?

Kent: Well, so for a family of, you know, let’s say a married couple of two making $100,000 a year, for example, will have a tax savings this year of $1,600. And next year, that’s going to grow to $2,100.

Miro: Wow.

Kent: And it keeps on growing. You know, eventually, it hits $3,000, so that by the end of, let’s say by 2031, that family will have saved a cumulative savings of $20,000 in tax savings in their take-home pay. That’s a lot of money going back to people to help afford the cost of living.

Miro: No kidding. All right, Joe Kent, executive vice president with Grassroot Institute of Hawaii. Touching on this again, the state Council on Revenues recently met to discuss the tax cut and its impact on the budget. What did the Council members say, Joe?

Kent: Well, yeah, there was a lot of worry. You know, the government worries every time there’s a tax cut because that means they might be “losing money.” And they tried to calculate that. So they did calculate it. 

Actually, they calculated that it’s going to be a $7.6 billion hit to the budget over the span of several years. So by the end of 2032 for example, it would rack up to over $7 billion. 

That means that the government might need to reduce its spending. It might have to tighten its belt and so on. And that’s a good thing by the way. The government should tighten its belt, and the money should go back to taxpayers. But the Council, thankfully, is also recognizing the fact that those monies could benefit the economy too and come back on the other side.

So just like I was mentioning before, people spend their money, it goes, zooms around the economy, and is taxed somewhere along the way, and that brings in more revenues. So they call that a dynamic effect. So at the Council, they were talking all about dynamic effects.

Miro: OK. Joe, the budget hearings are going on I guess right now also. What happens in those hearings and how are they going?

Kent: Well, January is budget season, I like to call it, because it’s when the lawmakers at the Capitol line up all of the department heads and one by one ask them about their department budget. And it’s kind of the one time that legislators can use the department heads as a punching bag [chuckles] and, you know, hold them accountable really, grill them with tough questions.

And so lawmakers are rightly asking about — you know, trying to scrutinize their budget requests and so on. But a common theme that we’re hearing from the department heads is that it’s so difficult to hire people. They can’t find the talent. And that’s partly because of the pay scales that are set, carved in stone, you know, by the union system, which means that if you want to pay someone more money, it’s really difficult to do so easily. And so that makes it difficult to attract the right talent. And, this is what the department heads are arguing. 

The Department of Health, for example, has a 30% vacancy rate right now. So 30% of the chairs at the Department of Health are just sitting empty. And their talent, of course, is looking at the salaries that they could get on the private sector and, you know, skipping out for those.

So that eventually might lead to the argument that salaries should increase, and that’s a hit to the budget. So there’s actually a hidden number in the budget, which is the union negotiations. Right now, that is scheduled at zero in the budget, but who knows, it might be $500 million, it might be a billion. You never know until it’s negotiated and it comes out of the secret rooms.

Miro: Yeah. And there was just a talk the other day about the Department of, what was that, Law Enforcement? They want to try to get, you know, some new highway patrols out there, some more personnel hired, which would be millions of dollars. So yeah, there’s more money. 

Joe, we’ve heard that the state has this booming tax revenue, which you highlighted at the top of the program. Where’s all the money coming from?

Kent: Yeah. It’s kind of mysterious, right? It’s like how did they have so much money that they could actually implement the biggest tax cut in the history of the state? 

Well, it came from three main sources. The first one was inflation. When inflation goes up, it hurts a lot of people, but it helps the government because the tax on that inflation goes up too, and so revenues boom. So that was one source.

Another source was federal dollars during the pandemic. Billions of federal dollars poured into the state and the state budget. And those monies are starting to dwindle down now, but those monies came in. 

Overtaxation actually. Lawmakers have raised taxes, almost every year, going back many years. And some of the tax hikes have been huge. Back in 2017, for example, they raised the top income tax rate in Hawaii to the second highest in the nation on the highest earners. So that’s 11%, by the way, up from 8%. 

A $350 million windfall from an estate tax, also known as the death tax by the way. So that means that someone or maybe multiple very wealthy individuals had recently passed away, but, by golly, they must have been very wealthy to have such a high estate tax. 

So they were actually talking about this in the Council on Revenues meeting the other day. They almost couldn’t help themselves but try to speculate who this might be. They’re not allowed to do that, by the way. But in any case, that’s where the money came from, is it must have been a billionaire.

Miro: [laughs] OK. Interesting. Joe Kent, executive …

Kent: Unfortunate for that billionaire, by the way. My condolences.

Miro: [laughs] OK.

Kent: Whomever that may be.

Miro: Yes. We remain nameless. Joe Kent, executive VP at Grassroots Institute of Hawaii. 

I guess, to sum things up, what is the big takeaway in your opinion from Gov. Josh Green’s 2026 budget?

Kent: Well, the big takeaway is that we can afford the tax cuts, and any sort of hesitation or question about that is very easy to allay just by looking at the numbers. And the numbers show that not only do we have a big $1 billion surplus this year — you know, normally, it’s like half-a-billion [dollars]. This year, it’s $1 billion. 

But we also have reserve funds. We have a billion-and-a-half [dollars] in reserves. And those reserves and the surplus grow by a billion dollars every year into the future. Such that, we’re sitting pretty.

Now, the only thing that could screw this up is the unprogrammed expenses in the budget. Remember, I talked about the unnegotiated union pay. And there might be, who knows? Maybe there could be an emergency in the future. There could be all kinds of things that happen. You never know, but at least the budget as it is now looks good. 

Now, lawmakers should do everything they can to protect the tax cuts, because I think that’s actually the best way they could help people in Hawaii, is by protecting that money. And the way they can do that is by keeping a lid on spending.

Miro: You brought up the unexpected. So we know there’s some settlement monies coming here. Any of the money going to the Maui Lahaina and restoration mixed in this? And how much?

Kent: That’s another one. Oh, yes. There’s, I believe, around $800 million in the budget going to the ʻOhana Fund. I think it’s called the One ʻOhana Fund, which is meant as a $4 billion fund. It’s supposed to grow, or they’re trying to collect $4 billion of money towards the lawsuits, so they can basically make all of the lawsuits go away magically kind of. And I say magically because there are some who don’t believe that it’s going to work, and if it doesn’t work, then it will result in a long and even more expensive court battle. 

So that’s all the inside knowledge that I have.

Miro: All right, Joe. Thanks very much for once again dialing us up and letting us know what’s going on as far as the financing of the state is concerned, the finances of the state, and we’ll see where things go. But it is a record-high $20 billion spending plan for fiscal year 2026 revealed by Gov. Josh Green recently; Joe Kent, breaking it down for us. 

Joe, thanks. And how can folks once again read your fine work with Grassroot Institute?

Kent: Yeah. Well, if anyone would like to know how much the tax cut will save them, they can go to grassrootinstitute.org/taxcalculator. And they can see it all right there on the page. So grassrootinstitute.org/taxcalculator.

Miro: Take advantage of it, folks. Enjoy the rest of your Sunday, Joe. We hope to be talking to you again soon.

Kent: Thanks so much.