Thursday, October 3, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, October 30, 2011
Kalapa: Tax Experts Favor System With Broad Base, Low Rates
By Lowell L Kalapa @ 4:05 PM :: 6162 Views :: Energy, Environment

Tax Experts Favor System With Broad Base, Low Rates

by Lowell L. Kalapa, Tax Foundation of Hawaii

Tax experts, public finance gurus, and public administrators preach that a good tax system is one that has a broad base that will allow a low rate to be imposed.

It is not so much the idea of a low rate of tax, as much as that it applies to all taxpayers who earn or spend that income or own that asset. Such is the case of Hawaii’s general excise tax where the statewide rate is 4%, one of the lowest in the country. In this case, the tax applies to anyone who wants to do business in the state by selling goods or services. For those who are outside the state and sell goods and services to consumers in the state, that sale is subject to the complementary use tax and is imposed on the consumer when the goods or services are received.

Because there are so very few transactions that are exempt from the general excise tax, the base, or the amount against which the tax rate is applied, is broad or large. In fact, as also noted earlier, because the tax is imposed at all stages, the tax base is actually larger than the total wealth of the state as measured by personal income. However, where the general excise tax would exacerbate the cost of the goods or services, exemptions have been provided. But in their search for money to help fill in budget holes, the legislature did suspend several of those exemptions for the next two years. Time will only tell if the suspension of those exemptions will have a negative impact on the state’s economic recovery.

For example, stevedoring activities, that is the loading and unloading of cargo that comes over the islands’ docks or through the state’s airports, are now being taxed at the full 4% retail rate. There is, no doubt, that this added cost will show up on grocery store shelves in the form of higher prices and conversely, it will show up in the prices charged for goods sold on the world market.

Another exemption that was suspended is the deduction contractors take when a portion of the contract amount is paid to subcontractors working on the same project. In the absence of the exemption, the contractor will pay the 4% on the full amount received from the client and when the portion owed the subcontractor is turned over, the subcontractor will pay another 4% tax on the amount he or she receives. This, no doubt, will drive the cost of construction up at a time when the industry is hurting for work. Those who were planning on building may just end up waiting until the two-year period expires.

The broad base discussion is not only limited to the general excise tax as a study commissioned in Honolulu is looking at the possibility of broadening the tax base of the real property tax by eliminating many outdated exemptions. In many cases these exemptions were carried over from a time when the state legislature determined the policies governing the real property tax.

Probably the most controversial proposal is to eliminate the homeowner’s exemption. Commission members noted that the exemption discriminates against those whose shelter is rented and not owned. Since the home exemption is extended only to owners of residential property who actually occupy that property, the renter gets no such break as their landlords who own and rent the properties are not afforded a similar exemption even though the property is providing shelter.

Similarly, commissioners are considering eliminating other exemptions for homeowners where the homeowners are disabled or are veterans, noting that a disability or the fact that one was a veteran does not necessarily mean that particular homeowner is in need of additional relief from their real property tax. In this case, the amount of the exemption is also relatively small having not been increased in over thirty years and takes less than $100 off the these homeowners’ tax bills.

It is not that the commission has no compassion for homeowners, but instead believes that tax relief should be needs based. To that end, they recognize that Honolulu’s real property tax laws already provide tax relief to those low-income families who truly cannot afford to pay their share of the county’s costs. This relief comes in the form of the circuit breaker tax credit that takes into consideration the homeowner’s income.

The circuit breaker credit sets a percentage of homeowner’s income and should the tax bill exceed that percentage, the homeowner is excused from paying any amount that goes over that threshold. If county officials adopt this philosophy, they would be returning the real property to a broader base that could provide the opportunity to lower the rate for all real property taxpayers.

--- 30 ---

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

MentalIllnessPolicy.org

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii

Obookiah

OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

RailRipoff.com

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

SenatorFong.com

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii