Soaking the rich would have negative consequences

In the couple of weeks before the Legislature’s “First Decking” deadline, legislators were hearing tax-related bills, not only the “Enola Gay” bill we discussed last week. Different tax-increase bills of all stripes were being considered. The testimony in response to those bills, interestingly, contained relatively few lamentations from a beleaguered public weary of tax increases.

Rather, many testifiers were in support.

There were those who sought to punish those who were surviving — a kind of crabs-in-the-bucket argument. “It makes sense to ask those who are fortunate enough to be doing well in this economy to pay more,” one testifier said, “in order to close the deficit without slashing the critical government services that so many struggling working families have come to rely on.” Ah, so struggling working families have an entitlement? “It is time for Hawai‘i to tax the rich,” another said. As if our government doesn’t do that already.

Other testifiers phrased it in terms of a moral imperative. “These changes are needed to ensure that the wealthy pay their fair share,” said one. “By asking the wealthy and profitable corporations to pay their fair share in taxes, we can prevent cuts to essential services and protect our communities,” exhorted another.

Another went into more detail, saying that the tax increases were directed at “higher-earning individuals and companies, many of whom have experienced no job loss and even profited over the past year with stock market gains and Hawai‘i’s surging real-estate prices. The wealthy and corporations also got significant tax breaks at the federal level in 2017, and can afford to share more in state-level taxes.”

Whether a particular taxpayer was wealthy or a corporation seemed to be enough to trigger the testifier’s ire, even though that taxpayer may have had overall losses for the year like many of us have had, may or may not have taken advantage of the so-called 2017 tax breaks, and might not have had any real-estate or stock-market gains to speak of. This kind of argument results when generalizations are layered on top of other generalizations. Its connection with reality fades with each additional layer.

Instead, consider this, proponents of tax hikes. Suppose your tax hikes snag a rich person. Do you seriously think that this person will just stand there and take the hit? Here are some of the things that such a person can do.

If the person is rich because he or she runs or has influence over a business, the prices of goods or services that business offers can be expected to rise. This is especially true if lots of people in similar industries are affected by the hike. If, for example, doctors are asked to cough up tens of thousands more per head in taxes, it won’t be long before the price of health care in Hawai‘i goes up. That bite will then be felt by much more than just the person the tax hikes are aimed at.

If the person is sufficiently fed up with, or otherwise can’t handle, the tax climate in Hawai‘i, he or she can get on a plane. A business can close its local branches. Our declining population numbers over the last several years and the increasing number of business closures tell us that this is not just theory. So, what happens when the cost of government is the same or greater but the number of persons paying that cost drops? The cost of government increases for those of us who are left.

In any event, taxing the “rich” can’t be viewed in isolation. Taking lots of money out of the economy through the tax system will have a ripple effect that will be felt by everyone. It’d be like shooting yourself in the foot. So, the next time you hear the argument, “Soak the rich!” ask yourself if this really is the path we want to tread.

•••

Tom Yamachika is president of the Tax Foundation of Hawai‘i.

14 Comments
  1. YuCalJoe March 14, 2021 5:44 am Reply

    Uh oh! You used logic! Get ready for hate from the illogical. Common sense and logic are toxic to them.


  2. Chip Nelson March 14, 2021 7:52 am Reply

    First off let me say that I have been an independent business for over 30 years and after reading your article several things come to mind.
    First of all I’m not rich enough to have taxes waved to improve my bottom line. Every year I pay taxes so I can enjoy road maintenance, fire and police protection, food inspections, air traffic controllers and the list goes on. I have been able to expand my business due to work, diligence and employees. Not through tax break or fish fry’s and checks for politicians or tariffs.
    I’m impressed with the guys who really made it and feel the obligation to return some of their wealth to others, Buffet and Gates come to mind.
    I’ve listened to the Tea Party/ Freedom Cause arguments for years about giving to the rich and corporations “trickles down” on everyone. Haven’t seen it happen that way in my lifetime.
    I think that the vailed thought of this article was to cast dispersion on the Covid Relief bill’s $2.9 million cost and it’s affect on the deficit. Giving this to needy people is bad. Totally not mentioning that the same amount was given to the top 2% and wealthy corporations during the last administration, which I’m sure Mr Yamachika thought was GREAT.
    And we see how that went.


    1. Dr. Fernando Arzola March 15, 2021 6:38 am Reply

      The delusion of Trickle Down Economics is still alive in the author…
      He, likes others sound desperate trying to sell this narrative despite overwhelming evidence to the contrary..


  3. Teddy Weverka March 14, 2021 9:04 am Reply

    In asking “Ah, so struggling working families have an entitlement?”, Mr. Yamachika is telling us that he believes working families should struggle. He sounds like Cain when he asked “Am I my brother’s keeper”.


  4. MisterM March 14, 2021 9:36 am Reply

    Mr Yamachika lives in an alternate universe. The rich have massively benefitted from similar ridiculous arguments.

    The notion a tiny increase in their taxes (after literally decades of tax-cuts for the 1%) will somehow create problems is laughable nonsense of the highest order. Remember post-war economy after WW2? Rich paid vastly higher taxes and the US enjoyed decades of growth and prosperity with the middle class doing very well. It’s only when tax cuts for the rich began in the 70s that US economy began to slow and middle class wages stagnated.

    And IF minor tax hurts, why haven’t their massive tax cuts helped, as so often claimed by you anti-tax shills?? Trump’s huge budget-busting, massive deficit-increase tax cuts for the 1% and corporations did nothing to boost jobs or the economy (fyi, Obama had as good, or better economic numbers). All the rich did was pocket the money and squeeze the 99% – wages didn’t go up, economic results were flacid – and the rich got ever-richer while the deficit exploded (which the 99% pays for).

    FYI – I am a member of the 1%. Paying a few percent more in taxes in no way affects my lifestyle or investments. I’m happy to pay taxes – means I have lots of income. My biggest beef is the complexity of the tax code – give me a flat tax. The money I would save on accountants and tax attorneys would offset tax increases. And make my investing much simpler.


    1. M Mister March 14, 2021 9:02 pm Reply

      Why not pay extra now and for the previous ten years? Make a donation to the state. It wouldn’t hurt your lifestyle going forward.

      Please use your own voice when speaking for yourself. Don’t put your ideas as the voice for everyone else. Same for Gates and Buffet. How much charity have they given to the federal deficit?


    2. Randy McNally March 14, 2021 9:27 pm Reply

      A guy who cannot even file his own taxes is giving economic advice. This is silly string economics. After world war 2 the top earners paid 90% taxes. Did those taxes stimulate a roaring post war economy? Or was the manufacturing setup by the war machine that setup the booming economy?

      By the math defined by Mister M, he should pay 90% and still be successful. Why doesn’t he try it and report back in 2 years?


    3. Rev Dr Malama March 22, 2021 7:55 am Reply

      Mahalo Sir!
      This Tax Man Weekly drivel is coming unraveled as the truth prevails….. doing what is morally right under God, all things are possible.
      Hopefully the roads, sewers and housing issues on Kauai begin to improve and our local attitude will also.
      With much Aloha


  5. Guy March 14, 2021 9:56 am Reply

    The only time I ever hear someone say “soak the rich” is from the side thinking that any amount of taxation to people making the most money is fundamentally wrong.

    What they seem to fail to realize is that when the government doesn’t have the funds to function, the government won’t have the funds to to function – for them, too.


  6. Business Owner March 14, 2021 12:33 pm Reply

    I own a small technology business in Hawaii, which has been built from the ground up through the hard work of myself and our dedicated and talented employees. The work we do could be done anywhere, as our customers are all based on the mainland. We offer the high paying jobs that Hawaii craves and which all of Hawaii’s politicians talk about at times such as these, with catchy labels such as Hawaii 2.0. In addition to being high paying, the jobs we offer are challenging and rewarding. We don’t pollute the environment. Our employees work from home and don’t even contribute to traffic problems. Where possible, we hire people who grew up in Hawaii, and who went to school in science and engineering. Our jobs are completely diversified from tourism. We’ve been injecting several million dollars a year into Hawaii’s economy.

    The tax initiatives that are currently being considered go beyond increases to my marginal personal income tax rate. These same taxes affect the business, and as my business, like many small businesses, is a pass-through entity. In addition to marginal PIT rate, the state is considering removal of many GET exemptions. While in my personal opinion, that is more than fine for the large Argo-Chemical companies on Kauai, I can tell you it’s a show stopper for a technology which has high operating costs in the form of high employee salaries. Hawaii GET is built around a tourist centric paradigm. Adding HGET to gross revenue (not profit) will do to my business what COVID-19 has done to tourism. To Mr. Yamachika’s point, if the State of Hawaii believes that businesses like mine will stand by while we are suffocated in a tax stranglehold, it is being naive. Fact is we already developing company transition plans because of the very initiatives that Mr. Yamachika is criticizing. We’re looking for a new home, which will offer better services, better roads, better schools which help develop the technology workers our business needs), at a third of the tax burden. We’ll take our millions of revenue and those jobs to another state. And if Hawaii believes it will attract other non-tourism related business that offers high paying jobs with these kinds of policies, it is wrong.

    As we speak, there is a significant redistribution of where technology work is being performed in the US, away from places such as California’s Silicon Valley. My suggestion is that if Hawaii is serious about remaking itself, it think long, hard, and deeply about how its taxation policies. Mr. Yamachika’s column is spot on. Hawaii can ignore it at its own peril.


  7. KauaiFarmMan March 14, 2021 12:59 pm Reply

    Classic welfare state politics. Let’s punish those who work extra hard and earn a lot of money. Meanwhile let’s hand out absurd amounts of money to those that avoid work so they can receive more handouts. It’s this very attitude that has caused a new generation of lazy bums that would rather collect free money then work. It’s precisely this attitude and culture that has Kauai being bought up by wealthy Mainlanders at an unprecedented rate. Local populations had a chance to buy land and homes when they were at a reasonable price. Sadly the recent surge in home sales that has driven up the median home value astronomically has left most local families without the ability to ever afford to own a home here. We won’t fix this problem by taxing the rich more. Try stopping the culture here of food stamps and welfare. Give the people better education and create a better work ethic. Kauai is digging itself into a hole it may never get out of. Local hardworking business owners will be effected by these new taxes the most. Paving the way for more mainland money to buy up the island.


  8. Dt March 14, 2021 9:11 pm Reply

    Notice there is no mention of the rates. The rates increase for everyone. With the highest bracket being the highest state tax in the country. Higher than New York. What nobody is talking about is how after inflation, the middle class may fall into the bracket.
    If the tax increase is to offset a lack of tourism, then what happens after the tourists return? Do the taxes return to the previous value?

    I know it’s not popular, but my family had a long talk about leaving the state due to tax increases. Hawaii is beautiful, but not to be milked through taxes. I am sure other families will have a similar conversation. I know many complainers will just say “goodbye”, but who will be left with the bill then?


  9. nothings free March 18, 2021 7:53 am Reply

    To all of you who with a cavalier attitude proclaim that “the rich paid 90% of their income in taxes in the past and everything was fine” are wrong, naïve, uneducated, and silly. 90% of what? NOTHING! The rich didn’t pay any taxes at all under the 90% rates because of the massive amounts of tax benefits and shelters that were subtracted from income! If I put my money in certain stocks, oil and gas, real estate and a hundred other tax shelters I paid no tax whatsoever no matter how rich I was! The 90% number was a mirage that never made it to the bottom line. In fact, it wasn’t until 1986 and the Tax Reform Act that those shelters were taken away and the tax rates were lowered to reflect a more logical reality. You over tax the rich, you tax yourself, the rich leave the Country, and millions lose their jobs. Period, end of story!


  10. Numilalocal March 18, 2021 11:15 am Reply

    The rich have soaked the rest of us since Reagan eliminated stepped income taxes. It’s their turn to pay up.


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