In his article appearing in the July 13th issue of TGI Mr.Lowell Kalapa extends his probe to consider whether a property tax that may be “more than what the homeowner can handle” should be adjusted by a criteria that seeks to examine ability to pay. The criteria he proposes is a percentage of the “adjusted gross income” reported for State or Federal income tax purposes.
Whether ability to pay is a test that should be incorporated in a tax is a policy question. Some taxes like our excise tax do not. If you buy gas for your car, eat at a restaurant or buy a new appliance there is no inquiry into your ability to pay the applicable tax. Other taxes like our income taxes do with their graduated rate structures and innumerable special provisions.
If you decide that ability to pay is an appropriate factor to consider you then must specify what determines ability. Mr. Kalapa suggests for our taxpayers it should be “5% of what they have”. It is not that simple. Some taxpayers have substantial assets and limited income. Others have a high income and limited assets. Taxpayers with incomes that are comparable may be in much different circumstances. Contrast a childless couple with a home without a mortgage with another couple that is struggling with high mortgage payments and trying to send their children to college.
Mr. Kalapa persists in his contention that for those benefited by the “adjusted gross income” test the resultant tax which clearly is measured by income is not an income tax. It certainly is. But in the application he proposes the taxpayer is unfairly deprived of the use of the deductions and exemptions to which he or she may be entitled in determining the statutory income tax liabilities. It seems apparent that the “taxable income” line on your tax return and not the “adjusted gross income” line would be a better choice if taxpayer’s income is to be a factor in determining liability.
Mr. Kalapa is also fuzzy about where the test is to be applied. He refers to “homeowners”. Would this include those whose residence is on agricultural land or those in condos? Would the test apply to only owners who occupy their residence or also to those who hold vacation homes or rent their property? He doesn’t say. He also ignores that due to timing factors the distortion arising because the income tax year must precede the property tax year by at least 12 months.
Any provisions that seek to deflect the amount of tax from the product of the assessed value and the rate add to the administrative costs of the property tax which are even without them quite high. The property tax does not enjoy a low administrative cost to revenue ratio.
After having promoted the concept that an income tax is fairer than a property tax he then knocks down the notion as impractical for the County by asserting that the income tax “is the sole province of the state” and much effort was expended in giving counties control of the property tax. His view seems to be that getting improved taxation is just not the Hawaiian way.
Mr. Kalapa proposes that if property taxes are to be reduced “the process starts at the spending end”. This analysis ignores the reality that governments don’t reduce spending unless they are forced to. In California and elsewhere property taxation was not meaningfully reformed until taxpayers took action. On Kaua‘i that route may also be necessary. The issues involved in real property taxation affect our pocketbooks significantly. Our people need to educate themselves as to the choices and to make their views known.
Walter Lewis is a Princeville resident.