I repeat: Now is not the time to raise taxes

by Keli'i Akina, Ph.D. President/CEO Grassroot Institute, February 11, 2023

For months, my colleagues and I at the Grassroot Institute of Hawaii have been advising Hawaii policymakers that now is not the time to raise taxes.

We have urged them instead to cut taxes, cut spending and use the state’s projected $10 billion budget to ease the financial stress on Hawaii residents.

On the surface, it looks like they’re listening. Gov. Josh Green’s “Green Affordability Plan” includes tax credits and income tax savings, and the Legislature has been considering bills that would lift the state’s fuel taxes for a year and exempt medical services, groceries and over-the-counter medicine from the general excise tax.

Those are good ideas, and the Grassroot Institute has campaigned in favor of them. In particular, we have appeared before multiple legislative committees in support of the GET cuts, and we will do everything we can to get those cuts across the finish line.

Unfortunately, there are still tax hikes moving through the Legislature, threatening to further increase Hawaii’s already-astronomical cost of living. In addition, many of them are explicitly targeting the so-called wealthy, in the mistaken belief that the results would be nothing but beneficial.

For example:

>> SB925 would levy a 1% “wealth asset tax” on the net worth of each individual taxpayer who owns $20 million or more in assets in Hawaii.

As my Grassroot colleague Joe Kent explained in his testimony on the bill, “wealth” taxes have proven to be inefficient and difficult to administer. They also could cause economic harm, by encouraging high-income individuals to move their assets out of the state, reducing business investment and depressing job growth.

>> HB337 would increase the capital gains tax for individuals from 7.25% to 9% and the capital gains tax for corporations from 4% to 5%.

Grassroot policy researcher Jonathan Helton pointed out in testimony on the bill that the tax might not even bring in more revenue, since it would incentivize people to hold on to their investments so their heirs could inherit them, thus avoiding the tax.

>> HB1211 and SB678 call for higher conveyance taxes, especially on higher-priced properties.

The House bill would start its rate hikes on homes valued at $1.5 million, then impose increasingly higher rates on higher-valued homes, with a full 10% conveyance tax for properties valued at $24 million or more.

The Senate bill would double or slightly increase the tax for homes valued at $2 million or less, then increase its rates by three, four, even five times as much for higher-valued homes.

In his testimony on SB678, Joe said one premise of this bill is that the majority of homes sold for $2 million or more are bought by non-residents as investment properties, and that a tax increase on these buyers would not affect overall affordability of homes.

“Yet, this bill would increase the conveyance tax for all homes,” Joe said, “nearly doubling the current tax rate on homes in the $1 million range, which is merely an average home in Hawaii. Thus, the tax hike will certainly affect all home prices, including more affordable homes and homes sold to Hawaii residents.”

>> HB1146 is a proposed increase in the state’s so-called carbon tax, but linked with a tax-credit scheme that supposedly will make it easier for Hawaii taxpayers to accept.

The bill begins with a generous series of income tax credits that start at $65 for individual filers in 2024 and increase to $480 by 2036. Those amounts are doubled for joint filers and there is a dependent credit as well.

That all sounds good until you get to the tax hikes, which by 2036 would increase on some fuels by over 3,000%.

Can you imagine what these hikes would mean for our cost of living? In a state where everything already costs more, prices would go through the roof, from our utility bills to buying fuel for our trucks and cars, from building a home to having a pizza delivered.

Undoubtedly, even more Hawaii residents would start packing to move to the mainland, continuing the state’s population exodus of the last six years and further shrinking the state’s tax base, leaving those of us who stay to bear an even larger tax burden.

Which leads me to say once again: Now is not the time to increase taxes.

The fact is, there is never a good time to raise taxes, but it is especially harmful in our current circumstances. The state’s revenues are healthy, yet Hawaii residents are struggling. These tax proposals, if implemented, would only make things worse.

Instead of trying to create stealth tax hikes or using taxes as a form of social engineering, Hawaii’s lawmakers should be looking at ways to grow our economy and make Hawaii more affordable for everyone. Some of them already are; we need them all to be doing so.
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This commentary was Keli’i Akina’s weekly “President’s Corner” column for Feb. 11, 2023. If you would like to have his columns emailed to you on a regular basis, please call 808-864-1776 or email info@grassrootinstitute.org.