| Let’s face it, no one likes paying taxes and we would all feel better if someone else paid them while we enjoyed the services purchased by those tax dollars.
Indeed that was the message that the Economic Revitalization Task Force proposals sent to lawmakers and taxpayers alike. The rationale was that by lowering the net income tax, residents would pay less in taxes while the hike in the general excise tax would mean that the visitor would pay more in absolute dollars. Thus, the tax burden would be shifted from resident to visitor.
Although it sounded like a good idea, pure logic defeated the proposal. And the logic was simple. For example, what if visitors don’t come in increasing numbers? Or for that matter, what if the visitor doesn’t spend as much as they did ten years ago? Both questions were on point and appropriate given the current situation of the visitor arrival and expenditure numbers.
But the Task Force proposal is not the only shell game that elected officials have played with the taxes we pay. At the county level, elected officials have played the game for years with the property tax. Realizing that the vast majority of the voting constituency are homeowners, county officials searched for ways to keep property taxes low on homeowners. The most common approach was to adopt substantially lower rates for the residential category of property.
In some counties where a number of transients own residential property, elected officials created a separate category that singled out owner-occupied residential property versus all other residential property. As a result, a lower rate could be granted to those owner-occupied properties.
What’s wrong with playing these shell games that shift the burden of taxes from residents to non residents or from homeowner to nonresidential classes of property? After all, isn’t it great that we as residents don’t have to pay those taxes?
That’s nice, but one of the cardinal rules of public finance that this shell game activity violates is the accountability rule. What’s that! Well, if money just flowed in and it didn’t cost you as a taxpayer very much in taxes, you would come to assume that government could provide even more. You might even opine that you would be willing to pay a little bit more to have another program or service. In other words, you as a taxpayer don’t realize what it is costing to run government.
When those who benefit from public services have to pay for them on a dollar for dollar basis, then they become a little bit more sensitive to what services are being provided and the quality of those services. If taxes get too high, the taxpayer begins wondering whether or not those public services are necessary or whether or not they are being provided efficiently.
So you might ask, what’s wrong with shifting the burden to visitors or to nonresidential properties such as businesses? Well, sooner or later, you as the consumer or as an employee end up paying for that shift in tax burden. Higher taxes on visitors mean that the visitor has less money to spend on other items be it a tour or a souvenir. Higher taxes on nonresidential properties such as businesses like stores or farms mean that the goods and services you purchase from these businesses are that much higher.
When the tax burden is hidden like that, either in a shift to visitors or to businesses, we all don’t have a clear picture of what it costs to run our state and county governments. With seemingly lower tax burdens, we demand more from our governments and elected officials think that their constituents really want all those programs and services.
But now it has come to a head. In order to fund all those programs, elected officials have had to find other ways to raise more money. They have resorted to non-tax resources such as fees and charges, indirect taxes that are imposed on certain taxpayers such as the liquor and cigarette taxes and the conveyance tax. The result is that these taxes have contributed to an ever spiraling cost of living in Hawaii. This in turn has made Hawaii less competitive on the world market not only for the goods and services it sells, but also as a place to do business.
Thus, the shell game has had a long-term devastating effect on Hawaii’s economy.
By Lowell L. Kalapa