One of the major arguments supporters of the Economic Revitalization Task Force like to use to sell the tax package and the increase in the general excise tax is that the increase will help shift the burden of taxes to visitors.
Although resident taxpayers will also have to pay the higher 5.35% rate on their purchases, their overall burden will be less because of the personal income tax cuts proposed in the package. Supporters of the plan argue that this shift in the tax burden from residents to tourists allows the tax burden to be exported to nonresidents and therefore the true burden on residents would be substantially lowered.
In fact, the staff to the Task Force prepared a misleading table of how much of the current tax burden is already exported to visitors. In that table they report that the amount of state and county taxes collected for every $1,000 of total personal income is about $131.89 in Hawaii while nationally the average is about $116.71. However, using consumer spending patterns and domestic travel patterns of spending, the staff devised what they believe is that portion of the tax burden paid by visitors as opposed to residents. This they determined to be that about 84% of all taxes are paid by residents and about 16% of all taxes are paid by visitors.
As a result, the amount calculated by the staff indicates that of the $131.89 in taxes collected per $1,000 in total personal income, only $110.68 is borne by Hawaii residents and $21.20 is paid by visitors. This compares with the national average of $111.34 paid by residents and $5.37 paid by visitors. It is on this basis that it appears the Task Force was persuaded to shift the burden to visitors.
But wait! What does this number tell us? It is the amount of taxes paid by visitors of a state’s taxes, in this case, Hawaii. It does not tell us just how much of a state’s tax burden is paid by people who are not residents and who are not visitors. The point of the matter is that every state exports a part of its tax burden. How that tax burden is exported depends on the nature of that state’s economy and tax structure.
To be fair, the staff analysis should have analyzed how much of the state’s tax burden is exported to any nonresident source. For example, where the staff analysis shows that 100% of the state conveyance tax is paid by residents, it raises the question what did all those foreign investors of the late 1980’s pay when they snapped up parcels of Hawaii’s real estate?
If that were done and a similar analysis was done of all states, it would be interesting to see where Hawaii would fall insofar as exporting its total tax burden. Even more fascinating would be to calculate how much of every other state’s tax burden Hawaii residents pay when it is recognized that we import nearly everything that residents consume – that means Michigan’s taxes on automobiles, Wyoming’s taxes on copper piping in our homes, and Washington’s taxes on timber that becomes the framing for our homes.
That raises another point, in many other states, governments try to encourage their export industries by imposing favorable tax rates so more products can be sold. For example, where are the lowest beer and wine rates in the nation? For beer, it is the states of Wisconsin and Missouri where the headquarters of the two largest brewers are located. For wine, it is California and New York where wine is a major industry. So are we missing something here in Hawaii where we impose heavy taxes on our “export” industry that raises the “shelf price” of that product – making it less attractive?
What is even more critical to this concept is that in every other state where their tax burden is exported via products, the customer can be located anywhere in the world. In the case of Hawaii which relies on exporting the tax burden to the visitor, we have to wait for our customer to come in the store. If they don’t come into the store – that is they don’t come to Hawaii – the tax burden cannot be exported. Thus, putting all our bets on exporting the state tax burden to visitors is a high risk proposition. If they don’t come, who then will pay the state’s tax burden?