Governor’s ‘remarkable’ tax bills still mostly alive
from Grassroot Institute of Hawaii, April 19, 2023
Not all of Gov. Josh Green’s proposed tax cuts survived lawmakers’ scrutiny this session, but enough are still alive to be optimistic.
Grassroot Institute Executive Vice President Joe Kent joined H. Hawaii Media radio host Johnny Miro on Sunday to discuss what remains of the “Green Affordability Plan,” which could amount to a $300 million tax break that would be “the biggest tax reduction in the history of the state.”
Kent referred to the package of bills representing the governor’s proposals as “a big fat tax reduction” and said “it’s remarkable that a governor in Hawaii would actually do something that would benefit so many taxpayers.”
Even if lawmakers wind up nixing the relief package, let’s keep on applauding this and celebrating it,” Kent said, because “the more people we can get to cheerlead this idea, the more it’ll happen.”
Kent said the governor’s proposal to exempt groceries and over-the-counter drugs from the state general excise tax died early. But the remaining features of his plan still have a chance, including a raft of tax credits and a measure that would peg the income tax brackets to inflation.
Also on the upside, he said, is that “basically every tax [increase] proposal in the Legislature this year died, and so taxpayers can breathe a sigh of relief” about that.
4-16-23 Joe Kent interviewed by H. Hawaii Media radio host Johnny Miro
Johnny Miro: All right, good Sunday morning to you. It’s time once again for our Sunday morning public access programming here on our live Oahu H. Hawaii Media radio stations.
I’m Johnny Miro. We broadcast live on Oldies 101.1, 101.5 FM, 97.1 FM, 96.7 FM and 107.5 FM.
Once again, the pleasure to be joined by one of the members of Grassroot Institute of Hawaii — grassrootinstitute.org for more on that.
And it’s tax season again here. And I’m just not talking about your tax return. The state legislators considered a lot of tax hikes and tax cuts this session. In fact, one of Gov. Josh Green’s biggest initiatives this year was the “Green Affordability Plan,” which would give tax relief across the board.
So today I’m joined by Joe Kent. He’s the executive vice president of the Grassroot Institute. That’s to get an update on the status of some of those tax bills.
Joe, good morning to you.
Joe Kent: Good morning to you. Aloha.
Miro: Yeah, good Sunday morning to you. Now, Joe, we’ve heard a lot about the governor’s tax plan.
Listeners are probably interested in what it does and where it’s at in the Legislature. I know it’s pretty complicated, so can you explain it first?
Kent: Yeah, sure. So this is a big fat tax reduction, which is actually a good thing because it’s a tax reduction for you and your listeners.
It’s across the board — every single person in Hawaii would feel a reduction in their taxes — and this is a good thing.
It would be the biggest tax reduction in the history of the state, and that’s about a $300 million tax break, which it does through a mix of deductions, exemptions, indexes and credits and a bunch of complicated mechanisms. Too complicated, actually. But [other than] that, it’s a good thing.
Miro: All right, what’s your take on the plan, Joe? Do you have any concerns with it, anything you really like?
Kent: Oh, yes. Well, we basically love it. [chuckles] Because when was the last time you heard any politician or lawmaker talk about a big tax cut? So, you know, we have to give credit where credit is due.
It’s called the Green Affordability Plan, and it was introduced by Gov. Josh Green, and so kudos to him for coming up with it.
Now, you know, there’s a lot of mixed opinions once you get into the details. But Hawaii has had the highest cost of living in the nation for a long time, and our taxes in Hawaii have grown and grown over the past decade and risen to record-high amounts.
We’re just used to high taxes in Hawaii, and that’s why people are leaving the state in droves, and so it’s about time for a tax break.
Miro: Joe Kent, executive vice president of the Grassroot Institute.
I don’t remember this being part of his platform — before I get to another question — it was about, you know, tax breaks as far as the general excise tax and food. Was this part of his platform? I don’t recall it being, during the …
Kent: No, he didn’t talk as much as he should have about this tax cut. I mean, I’m just identifying it as something that we all should be looking at.
Whenever it comes to tax reductions, I think politicians in Hawaii are just not used to talking about them. [laughter]
Miro: Good point.
Kent: And so it’s just kind of a foreign language.
Miro: [laughs] Can you talk about some of the details of this though?
Kent: Yeah, sure. So it has three basic mechanisms that it does.
No. 1 is it introduces credits — tax credits. And No.2, there’s actual tax reductions. And 3, it pegs the brackets to inflation.
So I can talk about all of the mechanisms of those, but one thing I was disappointed in though is it doesn’t actually have a simple cut.
You know, like if you were to actually reduce taxes with a cut, you would reduce the income tax rate downward. That’s a really clear way to cut taxes, and it’s a simple way to do it. It’s the best way to do it.
This plan kind of does a dance around it and never actually cuts. But it reduces taxes nonetheless through a bunch of complicated means.
Miro: And I got a feeling that would mean something like credits, but what are some of the different things that this bill would do?
Kent: Yeah, sure. So first, on the really good side, it would increase the standard income tax deduction.
So basically, you could deduct more, and that’ll effectively lower the bill for a lot of taxpayers in Hawaii. So it’s effectively a tax cut, I guess you could say, so that’s like — hooray.
And it will also double the personal exemption, and that’ll help families with children get a bigger tax break too.
And then another thing it’ll do is it, like I said, pegs the income tax brackets to inflation.
I mean, you know, Hawaii families always get pushed into higher and higher brackets because, you know, as inflation persists, then we just find ourselves in these higher brackets. And if we don’t peg it, then we’ll always get a higher tax bill as we, you know, as inflation keeps going.
So pegging that is important, and that’s a good thing that this does too.
So that’s, you know, the tax-cutting sort of reduction mechanisms that it does.
Miro: OK. So what about the credits? Are there any in there?
Kent: Oh, yes. Yes. There’s a whole buffet of credit.
Miro: It usually is. Yeah.
Kent: It has a food excise tax credit and a teacher supply credit and a low-income renter’s credit and a child independent care credit and an earned income tax credit — so basically, every credit you could think of.
And all those credits will make people’s tax refunds higher, so I guess that’s good. But it could also transfer wealth from one taxpayer to another, and that’s not always good.
Miro: OK. Now speaking of that, are these tax credits good or bad in general?
Kent: Well, tax credits are always a murky concept. I mean, they’re good in the sense that they give back more tax money to people, generally. But they’re not so good in that they take money from other taxpayers.
So, for example: Some taxpayers may not need to pay any income taxes, but they’ll still get a refund. And so where does that refund money come from? Well, it comes from other taxpayers.
So it’s kind of a murky concept. But overall, I guess you could say in the broad scheme of things, we want more taxes going back to the people.
Miro: All right. Joe Kent, he is the executive vice president of the Grassroot Institute of Hawaii — grassrootinstitute.org for more on that.
And Joe, where is the Legislature in this? Does it have a good shot of passing?
Kent: Yeah, it has a shot. It’s hard to say. It’s going to conference committee. You know, conference committee is where it sort of goes behind the curtain under a shroud of darkness and the lawmakers hash it out sort of behind the scenes.
I mean, you can kind of see a little bit of what they’re doing. But we’ve seen a lot of good bills vanish through some hocus pocus in conference committees, so we’re watching that.
Also, the plan was broken up into three bills. And you know, one of those bills has already died, I think, the food excise tax credit. So now, then there were two, right?
So honestly, it’ll be somewhat of a miracle if it passes. But, you know, taxpayers need a miracle to afford life in Hawaii. It would be a much-needed miracle.
Because just think: If this passes, what kind of positive signal would this send to our economy and entrepreneurs and residents thinking about the cost of living? So we need a miracle. [laughs]
Miro: And maybe even, yeah, people on the mainland — former residents — they might say, “Hey, I got a chance.”
Well, I know you had a forum on the governor’s tax plan a while back. Now, can the state afford a tax cut without also cutting spending?
Kent: Yeah, that’s what a lot of lawmakers are worried about. We are seeing some signs of maybe an oncoming recession. And people have jitters about, you know, are we still going to have all these tax revenues in the future? Can we afford a tax cut?
But, you know, we just held an event with the director, the budget director, Louis Salaveria, and he says that we have a lot of money, and the state has a lot of money.
The surplus — or ending balance — of the state is projected to be well over a billion dollars. It could hit $2 billion. And in future years it is projected to grow even more.
I mean, the original projection was that the state would have a surplus of $10 billion in just a few years. So, why do they need all that money?
And we have a billion in the emergency reserve fund on top of that.
So, I mean, it’s just not right for the government to hoard all that extra money — they should be giving it back.
And so what the budget director said at our event was there’s no better opportune time to look at this.
Miro: Now I remember on the campaign trail, the governor suggested this exempting food and medicine from the GET.
I think you just touched on that a little bit. It sounded like it didn’t gain any traction, right?
Kent: Right. Well, the exempting food and medicine from the general excise tax died, that actually died early on in the session. And because there are a few arguments.
The main argument that people had with that is that tourists pay the general excise tax too, and so why are you giving tourists a tax break? But, I mean, I think lawmakers forgot that families also pay that too.
I mean, when you go to a grocery store and you pay that tax. So if you’ve got a $100 tax bill, then now you’re going to tack about $5 on top of that — or excuse me, a $100 grocery bill — then that’s a $5 tax on top of that, and that adds up to a lot over time.
And so families and taxpayers in Hawaii need a break too.
But, anyways, that unfortunately died early on.
Miro: Yeah. Now all the folks at the Grassroot Institute were working on a bill, I remember, to exempt medical care from the general excise tax. Now, did that bill pass?
Kent: No, unfortunately, that has died late in the session — I mean, unless it re-emerges somehow.
But the bill would have removed the general excise tax for Medicare, Medicaid and TRICARE, and that would’ve been a really good thing. I mean, Hawaii is one of only two states that currently taxes medical services, and we’re the only state that taxes Medicare and TRICARE.
And what we’re hearing from the doctors in Hawaii is that they’re closing shop. I mean, Hawaii already has a huge doctor and nursing shortage. We’re seeing providers — especially on the neighbor islands — losing money.
I mean, they’re operating in the red — a lot of these — just to stay open, and this would have saved them $200 million, which could have prevented them from closing.
It could have helped make healthcare costs less expensive. And it’s really too bad that that didn’t pass. I think it got squashed with — like a bug — with some of the political palace intrigue that was going on this year in the Legislature.
So, hopefully, you know, we can get that going again in future years.
Miro: Yeah. So you’re positive — the outlook on that is they’ll revisit that again, in your opinion?
Kent: Yeah, I think so. And, you know, I like to say “third time’s the charm” — and maybe fourth time or fifth time.
But it could definitely happen. I mean, like I said, there’s a major doctor and nursing shortage right now, so we need anything that we can get.
Miro: OK. So people are working on their state and federal tax returns. Now, did lawmakers look at any bills to increase taxes this year?
Kent: Yes. [chuckles] Unfortunately, they did. They looked at a whole — in fact, at the beginning of the legislative session, the lawmakers told us, “Hey, you guys at Grassroots Institute have your work cut out for you because we’re going to introduce a ton of new taxes.”
You know, that’s really disappointing to hear, but they did introduce like a capital gains taxes and conveyance taxes and other tax hikes.
Thankfully, we argued that these taxes would devastate savings and investment in Hawaii, and the lawmakers listened and they shelved those bills.
Kent: So, I mean, basically every tax proposal in the Legislature this year died. And so taxpayers can breathe a sigh of relief.
Miro: Now, you didn’t mention one that I heard. There was a bill to create a wealth asset tax. Can you explain what that bill would do? And is that still alive?
Kent: Yeah. So that would take 1% from anyone who had more than $20 million in assets. The bill died. But basically, you know, it would look at your investments, your businesses, your real estate, any works of art that you own, anything else that’s an asset, and total it up. And if you have more than $20 million, they’d take 1% from you.
But all these taxes do is scare away the wealthiest. I mean, that’s what happened around the world when this tax is imposed. We looked — the wealthy people flee. And then actually what happens, you don’t get any tax money, so this was a problem.
And let’s not forget that the top 1% of income earners in Hawaii already pay about a quarter of all the income taxes in the state. So Hawaii already taxes the wealthiest residents to the hilt.
But every time they start to raise taxes — or they even whisper about it at the Legislature — we get calls at our office from people who are like, “I’m out of here,” and they move away.
And so, and also, wealthy residents, you know, they donate to nonprofits. They’re the biggest donors to soup kitchens and food banks and things that we need in the state.
These are the job creators and entrepreneurs in our community. So it’s sad that legislators came up with that idea, but [I’m] happy that it died.
Miro: All right. Joe Kent, the executive vice president of Grassroot Institute of Hawaii — Grassroot Institute of Hawaii.
Couple more questions for Joe this Sunday. What about some other tax bills that failed to make it?
Kent: Yeah, well, there was a rail tax. I mean, there was a bill that would’ve made the rail tax permanent. I’m talking about the county surcharges. It would allow the counties to continue those surcharges until after the expiration date.
You know, those are supposed to expire in 2030, and so we don’t want that to continue. Thankfully that died.
And then there was another bill that would’ve doubled taxes on short-term rentals.
Another one would’ve had a conveyance tax hike, which basically hits people who are buying and selling homes.
Then you had a vacant homes tax and a carbon tax. And all of these bevy of taxes died, and that’s a good thing because Hawaii already has record-high taxes. And so we argued against them. And, but we have to be vigilant in the future because these ideas have legs — and unfortunately, they’re gaining traction.
Miro: All right, Joe, looking forward: I know there’s been concerns that Hawaii might be headed for a recession.
Now, if that’s true, would a tax cut help Hawaii residents right now?
Kent: Yes, yes. Absolutely. I think, even more so, you need a tax cut during a recession.
Because, I mean, we still have, like I said, a bunch of money at the state. They’ve got a $2 billion surplus, $1 billion in reserves. It’s projected to grow way — obscenely high amounts.
And so yes, some of that should be put into reserves to help if there’s a recession. But a lot of that should just go back to the taxpayers.
The best defense against a recession is low taxes. I mean, just think about it — the economy is still OK. Like today, it’s OK. But even today, businesses are struggling with trying to pay those taxes.
Now, just look at the unemployment insurance taxes. Those are jacking up this year two notches, and that’s going to hit a lot of people. It could go up, you know, it could increase business taxes by over 100%. And so the taxes are too high.
So lowering taxes ahead of a recession sends a signal: It says Hawaii is open for business. And we need to attract the best and brightest entrepreneurs to our state — and that can only happen if we have lower friction for business owners.
So now might be, you know, the perfect time to do that. And yes, it would give the state less money to play with. But personally, I don’t want the state playing with my money. [laughter] I think it’s more useful in our hands than in theirs.
Miro: You mentioned the unemployment tax. I remember, you folks were on top of that — really spoke out about that [saying] it would really hit the businesses hard.
Was that two years ago maybe? It’s going to happen again? I haven’t seen any …
Miro: OK. Can you …
Kent: Yeah. So basically what happened is during 2020, you know, the tax revenues fell off a cliff. And the, you know, the businesses — there was a lot of unemployment, businesses were shut down, and so we saw the unemployment fund drain.
I mean, you might — people get unemployment, and sometimes they wonder, where does all this unemployment money come from? Well, it turns out there’s this fund at the state. And if the fund empties, then the tax goes up automatically.
Well, that fund emptied even more than empty — it was like half a billion dollars in the red — and so lawmakers took a bunch of the federal aid money, they bailed out the fund, and so now it’s starting to get into the black again, but it’s still kind of empty, and that means that the tax is going to automatically raise.
Well, for the past two years, lawmakers have held the line and kept the tax low, even though it’s supposed to automatically raise. But I think this year they must have forgot because there were no bills about this at the Legislature this year.
And all of a sudden we’re getting calls at the Grassroot Institute from tax accountants and businesses saying, “I can’t pay this tax.”
So this is a big problem, especially for businesses that have lots of employees that are going to get hit really hard with this.
Miro: Wow. OK. I’m glad you guys brought that to light. I’m sure there’ll be more discussion about this.
Now, is there anything else you’d like to add, Joe, before we let you go?
Kent: Yeah, sure. I mean, we’ll be watching what the lawmakers do to the “Green Affordability Plan” in the conference committees.
But I just have to say it’s remarkable that a governor in Hawaii would actually do something that would benefit so many taxpayers. I mean, he deserves to be commended for introducing the idea.
And if it doesn’t pass this year — I mean, we’re crossing our fingers — but if it doesn’t pass this year, then it should keep being introduced, because we need relief. Taxpayers need relief.
So let’s keep on applauding this and celebrating it. And the more people we can get to cheerlead this idea, the more it’ll happen.
Miro: OK, Joe. Thanks. How can they reach you at the Grassroot Institute?
Kent: Sure. Well, you go to grassrootinstitute.org. And you can find us on TikTok and YouTube and Facebook and Instagram and all of them.
And we’re doing really neat videos and memes and posts that basically break down everything in an easy-to-understand way. So follow our materials, and you too can be a watchdog in Hawaii.
Miro: Great. Nice job today, and hopefully, we’ll be talking to you soon.
Enjoy the rest of our Sunday, Joe, and give my thanks to the people at Grassroot Institute. And thanks for coming on H. Hawaii Media once again.
Kent: Thanks so much, Johnny. Aloha.