Proposed "green fee" a reason for red flag

by Keli'i Akina, Ph.D., President / CEO, Grassroot Institute of Hawaii, Feb 1, 2025

Few ideas are as tenacious as the myth that we can make tourists pay for major programs without affecting locals.

Yet, Hawaii policymakers seem to believe that tourists are an endless source of funds, a golden goose that will never stop laying.

The most persistent example of this is the so-called green fee. It first surfaced in 2023 as an outright charge on tourists.

That plan, which was fraught with logistical and legal issues, was replaced the following year with a hike and surcharge on the state’s transient accommodations tax.

This year’s version — as embodied in HB1077 — is strikingly similar, simply proposing an increase in the TAT from its current rate of 10.25% to 12%.

Well, taxes are not a scalpel. They’re a blunt instrument. And a massive TAT increase such as that would ripple through the economy with plenty of unintended consequences.

For starters, it should be painfully obvious by now that the TAT affects locals. As Hawaii residents, we pay the TAT when we travel interisland to work, visit friends and family or seek medical care.

The current TAT rate is bad enough, but increasing it by almost 20% could easily make things worse.

A 2017 study from the European Union found that coastal and leisure destinations were especially affected by higher costs brought on by higher tourism taxes.

Additionally, a study of the Maldives, which gets about 70% of its revenue from tourism taxes, found that a 10% increase in those taxes reduces demand by 5.4%. The proposed increase for Hawaii's TAT would clock in at almost double that.

Hawaii already has the highest tourism taxes in the world, with the average Honolulu visitor paying an extra $51.70 a night in taxes. Increasing those expenses would just give visitors another reason to go elsewhere — or spend less if they still come.

In other words, tourists might pay the higher lodging costs from the TAT, but every local business that depends on tourist spending will suffer — and they won’t suffer alone.

When restaurants, retail outlets and boat rentals fall on tough times, that affects their employees, suppliers, banks — the whole community. It also can result in less tax revenue for the state.

Proponents of the green fee claim the revenues from the tax hike would be used to fund a slew of new initiatives related to climate and economic resiliency. But climate issues should be dealt with more forthrightly and with a more direct funding and accountability process.

As for economic resiliency, the best way to help Hawaii’s economy right now is certainly not through imposing a tax hike on a major industry in order to pay for more government-funded programs.

On the contrary, putting a stop to this idea for good is one of the most economically resilient actions our lawmakers could take.

E hana kākou! (Let's work together!)