In the annals of bait-and-switch swindles, a proposed Hawaii constitutional amendment to tax “investment real property” and use the revenue “to support public education” stands out not for its brazenness as much as for the obvious hope that voters won’t bother to read or think about it.
The process started out described as a way to make sure that “they” — meaning rich, out-of-state money people with sumptuous homes here that sit vacant while ordinary citizens struggle to find rooms to rent — will be forced to pay for public services. Right now, the argument goes, they make millions of dollars from property they speculate on and that they use to shield investment income from taxation.
It’s enticing. Many believe strongly that this new taxation scheme would focus on absentee-owned homes worth $1 million or more. What’s not to like?
It’s not for no reason that people think this measure is a $1 million absentee-owned home tax, which it isn’t. That’s because as the amendment worked its way through the state Legislature, the original language stipulated that it applied to “residential investment property valued at $1 million or greater, excluding a homeowner’s primary residence.”
How could anyone vote no?
Well, one reason is that the million-dollar-home language was mysteriously scrubbed from the bill on its way to the November ballot. The final version reads: “Shall the Legislature be authorized to establish, as provided by law, a surcharge on investment real property to be used to support public education?”
Notice that “investment real property” is not defined. It could be a hotel. An office building, a small commercial building in Lihue or a house owned by a local family that lives elsewhere on Kauai but purchased a second home now occupied by ohana. The question of how much the surcharge would be is quietly left unaddressed. Some Legislature would grapple with that in the future.
There is also no language that defines “to support public education,” but, more important, no language to ensure that the Legislature doesn’t hijack the proceeds. The Legislature’s track record in that regard is abysmal. Kauai County has been robbed of millions of dollars in Transient Accommodation Tax revenue.
The Kauai County Council is on record opposing the amendment. I agree with them, but not for the same reasons the body identified. Councilmember Ross Kagawa was one of the leaders of the charge to oppose. Without citing any sources, he argued that while Hawaii has the second-highest per-pupil public school funding in the country, its teachers are second from the bottom in terms of salaries, which he said revealed the bill as yet another ruse to raise taxes. The schools, he suggested, don’t need any more money.
Two problems with Kagawa’s argument: First, his numbers are wrong. According to Education Week magazine, Hawaii’s starting teacher salary ranks 21st in the country, and, according to an analysis by a USC researcher done in conjunction with votesmart.org, Hawaii is 12th in per-pupil spending. Both of those sources are objective and unbiased.
But second, Kagawa’s argument assumes that no tax increase can be a good tax increase. And we need, badly, to get past that. Since the 1970s, the United States has been engaged at every level of government to “starve the beast,” as an unidentified Ronald Reagan staffer put it. If you hate government, you fight it by depriving it of money, thereby making it incapable of serving the needs of the people, thereby supporting the argument that “the government” is intrinsically bad.
Kagawa’s contention was that schools don’t need any more money because apparently administrators are robbing the system of funding while somehow impoverishing teachers. The state may well be impoverishing teachers, but it’s not because per-pupil expenditures are too high and the money is being mysteriously held back from them — the most important link in the education chain.
I don’t want to pick on Kagawa too much, since he and I have had our disagreements and I did once mistakenly say he was terming out this year, when he isn’t. He’s running and you can vote for him. I contacted him to ask him to react to the statistics I found, but he didn’t respond in time.
Hawaii needs additional sources of tax revenue, but they should not be created through manipulation of the Constitution by means that are so obviously fraudulent.
If you receive pension benefits — and I’ll volunteer that about three-quarters of my personal income is from pension benefits including Social Security — you don’t pay income tax on that money in Hawaii. If you’re younger than 65, you’ll probably refuse to believe that, but it’s true.
What level of revenue would be generated by, fairly, subjecting pension benefits to income tax liability — even at rates lower than what younger, working adults pay? Certainly hundreds of millions; maybe more. But few legislators — if any — would have the courage to advocate for such a change for fear the Fossil Generation (me and my contemporaries) would rise up.
Counties have historically had the exclusive right to tax real estate. Hawaii is the only state where counties don’t control the school system. The state does. This bait-and-switch constitutional amendment would be the camel’s nose in the property tax revenue tent, though saying it that way does camels a disservice. Vote no.
Allan Parachini is a retired public relations executive, journalist and Kilauea resident who writes periodically for The Garden Island.