One reader recently wrote bemoaning that he had to read these comments about how taxpayers are constantly being overtaxed and his suggestion is that those who can pay their fair share should do so, “just pay up.”
Unfortunately, what we haven’t reminded taxpayers recently is how high the burden of taxes is in Hawai‘i. Hawai‘i continues to remain in the top five states with the heaviest per capita tax burden. And while some would like to believe that a good portion of the state tax burden is “exported” to visitors, one merely has to look back a few months when visitors were not coming in droves to visit our island paradise. Of course, for those who believe that taxpayers who have any kind of wealth should pay their fair share and should “just pay up” rarely include themselves in that group.
However, here in Hawai‘i taxpayers know that they have been paying and paying and paying whether or not they have the means to pay their fair share. Not only does Hawai‘i have the highest income tax rates, but it also has one of the lowest thresholds before the poor start paying income taxes. In other words, in other states where there is a state income tax, the first lump sum of a poor family’s income that is exempt is larger than that of a Hawai‘i poor family’s income.
Then there is the unique general excise tax that many uninformed like to call a sales tax pointing out that with such a low rate of 4 percent there is lots of room to raise it another percentage point. After all, California just lowered its tax rate to 7.25 percent, and it is still higher than that measly old 4 percent rate. What those folks don’t realize is that the general excise tax applies to all transactions, including services and rental income, something that does not happen with the retail sales taxes found on the mainland. As a result, if one were to convert the general excise tax to look like the retail sales tax and apply it only to the sale of goods or tangible personal property and then only on the final consumption, the tax rates would have to be 10 percent-11 percent to generate the same kind of money that the general excise tax at the 4 percent rate generates.
Then there is the fact that the general excise tax is imposed every time a transaction takes place. That means when goods or services are sold for resale by the purchaser, the tax is imposed, albeit at the lesser rate of 0.5 percent. Thus, depending on the number of times the goods and services are resold, the tax can quickly add to the final price when sold to the final consumer of those goods or services.
And don’t forget that the general excise tax is imposed on all overhead costs, that is the costs incurred by a business just to open its doors, be it the rent of the store or office or warehouse to the brooms that sweep the floors to the paper used to make copies for the business. All of those overhead costs that are consumed by the business are subject to the full 4 percent rate. And unlike many other states, the 4 percent tax is imposed on fuel for gasoline. This drives the cost of all transportation higher as the price of fuel rises.
Speaking of fuel, while the electricity and gas taxpayers use for utilities are not subject to the general excise tax, they are subject to a stand-in called the public service company tax. Thus, while utility users have such a disdain for the ominous “fuel adjustment” charge, they should remember that they should have just as much disdain for the public service tax that is also a percentage of gross income.
Perhaps taxpayers wouldn’t mind “just paying up” if, in fact, they were getting a good return for their tax dollars, but the massive public bureaucracy almost guarantees that those tax dollars are not being used as efficiently as they could be. From potholes in the roadways to the decrepit public facilities in school buildings and public housing, the proof is everywhere. From an educational system that continues to struggle to overcrowded prisons and the growing homeless population, most taxpayers will agree that they are not getting the best bang for their tax dollar.
Thus, with such a heavy burden of taxes to a government that seems unable to respond to the needs of the community one really has to ask why should taxpayers “just pay up?” Shouldn’t taxpayers demand better? The status quo is unacceptable and using the excuse that cutbacks and budget restrictions keep government from delivering the services we have been promised should also be rejected. Government has to use the resources taxpayers have given it in the form of taxes and fees in new and innovative ways. Raising taxes is not the only solution.
• Lowell Kalapa is president of the Tax Foundation of Hawai‘i, a private, nonprofit, non-partisan, educational organization established to research issues confronting governments in the area of public finance, taxation, and public administration. It is supported entirely by private contributions. Visit www.tfhawaii.org for more information.