Focus should be on job growth and progress, not more and more taxes

by Keli'i Akina, Ph.D., Grassroot Institute, April 19, 2025

Sometimes a situation looks better on paper — and that seems to be the case with Hawaii’s economic recovery from the devastating COVID-19 lockdowns. 

According to Eugene Tian, chief economist of the Hawaii Department of Business, Economic Development and Tourism, the state’s economy “overall” has fully recovered.

But that’s not saying much. Hawaii continues to suffer anemic economic growth — the second slowest in the country — and that suggests there’s more we could do to help our local businesses rebound.

Unfortunately, Hawaii lawmakers often appear determined to do the opposite.

For example, HB202 as introduced would have increased the unemployment contribution tax on businesses by almost half as a result of redefining what comprises a healthy “adequate reserve fund” of the state’s unemployment insurance program from 100% to 150%. 

The bill has since been stripped of a specific increase, and now also would require the state Department of Labor and Industrial Relations to study whether the multiplier should be increased at all, so maybe we’ve dodged a bullet. But still, the optics aren’t good.

Then there’s HB476, which proposed increasing the state’s capital gains tax — also by an unspecified amount. This bill remained in play for far too long before Senate lawmakers finally shelved it earlier this month. 

Not only was the blank amount of the proposed increase worrisome, but capital gains taxes are associated with slow economic growth, especially because they discourage diversification and the movement of capital in the state.

Lawmakers in both chambers, however, still seem to be insistent on increasing the state’s transient accommodations tax, which gets imposed on anyone who stays at local hotels or other short-term rentals.

As with the capital gains tax proposal, neither SB1396 or HB504 say what the increase they are proposing should be, but previous versions suggested an approximately 17% increase, from 10.25% to 12%.  

Hawaii already has the highest tourism taxes in the world, and research shows that further increases are likely to have negative effects on tourism — which would impact everyone in the state who derives their income from visitor spending, whether directly or indirectly. 

Instead of trying to wring more tax dollars out of the people who help fuel our state’s economy, we should be looking at ways to make the state more attractive to investors and entrepreneurs. 

In fact, the Grassroot Institute of Hawaii’s 2020 report “Road map to prosperity: How Hawaii can recover and even excel after the coronavirus lockdown” recommended that lawmakers consider temporarily reducing the TAT and other taxes that burden the retail, restaurant and tourism sectors.

Other business-friendly policies outlined in that report include permanently exempting food and medicine from the state general excise tax and deferring occupational licensing requirements — two ideas that regularly get shot down at the Legislature. 

On the bright side, the Legislature has recently been more open to the report’s recommendation that more homebuilding be encouraged in urban areas.

Specifically, state lawmakers last year passed several key housing measures, including SB3202, which mandates that the state’s four counties allow at least two accessory dwelling units per residential lot.

The Legislature also passed a bill last year that will make it easier for cottage food businesses to operate across the state, and one that exempts doctors and dentists from paying the state general excise tax on payments received from Medicare, Medicaid and TRICARE — two other policy suggestions featured in the Grassroot report. 

So while some progress is being made, it’s important to remind our legislators that they should be focused solely on increasing job opportunities, helping lower our cost of living and even producing more tax revenue for our state and county governments — not considering tax and fee hikes that will hinder our prosperity.