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Some Ways Increase in General Excise Tax Will Affect Overall Cost of Living

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By Lowell L. Kalapa

Some lawmakers are making a big push to sell the union recommended idea that the state’s general excise tax be increased either one or two percentage points while exempting food and over-the-counter drugs from the tax. In fact, some of those lawmakers believe that it is necessary to raise taxes to pay for services that are needed by the poor.
Those same lawmakers argue that because food and medicine will be exempted from the tax, the rate increase won’t “hurt” those who cannot afford the tax increase. That perception could not be further from the truth. In fact, the very agencies that help the poor will, in fact, be hurt the most as most depend either on state or county contracts and contributions from the public.
What many taxpayers don’t realize is that the general excise tax is so insidious that it permeates through out the entire marketplace such that nearly every transaction is subject to the tax. This is unlike the retail sales taxes of California, Texas or Florida where food purchases are exempt, and the tax applies only to the retail sale of goods or things.
Note well, that the retail sales tax found on the mainland applies only to things and not to services. One of the largest costs for either individuals or businesses is the cost of occupancy or rent. Rental income is almost always subject to the current 4% rate. In fact, many commercial leases and in many cases formal contracts for rental of residential property are subject to a clause which says that the renter or lessee is responsible for the general excise tax at the 4% rate or the rate prevailing during the time of the lease term. Thus, landlords have the ability to increase the amount of rent due as a result of a hike in the general excise tax. And since most of the residential renters can’t afford to purchase their own homes – that’s why they are renting – it is the poor who will be hit with the increased general excise tax rate.
Ah, but lawmakers argue, people will make up that increase because they won’t have to pay the general excise tax on their food purchases. While that may be true, the cost of the increased general excise tax rate will be imbedded in the cost of the goods on the grocer’s shelves.
Because the grocer is also a consumer, everything that the grocer purchases to run the store will be subject to the higher general excise tax rate. From the mops and soap purchased to keep the grocery store aisles clean to the grocery bags and plastic bags that are used to hold your purchase will be subject to the higher rate. Thus, the cost of groceries will rise even though they may not be subject to the general excise tax.
Inasmuch as the sale of gasoline is also subject to the general excise tax, the cost of filling your tank will also rise as will the cost for all the truckers who bring goods to market be it food, clothing, medicines, or furniture for your home. Even Hawaii’s major industry – tourism – will feel the pain of an increase in the general excise tax rate. From hotels where the combined rate will rise from 11.41% (7.25% TAT plus 4.16% general excise tax) to 12.15% or 13.61% depending on whether it is a 1% or 2% increase in the rate to luau shows and catamaran rides, all of which will rise with the rise in the tax rate.
And what about Hawaii’s place on the world marketplace? Certainly exported goods and services won’t be encumbered with the general excise tax, but because those goods or services are performed in Hawaii with all of the overhead costs subject to the higher general excise tax rate the cost of these goods and serves will be higher. So everything produced in Hawaii will also be exacerbated with the higher cost of the tax.
And what about those agencies that provide human services to the poor? Do they think they escape the tax hike? No way! What about the paper on which that agency has to write its reports, or the tables and chairs it may need for the classroom of youngsters in its preschool program? Just because the agency may be a nonprofit does not exempt it from paying the increased general excise tax rate on its purchases. So instead of being able to serve more clients, it serves less because of the increased cost of the tax on all of its purchases.
So is increasing the general excise tax rate and exempting food and over-the-counter medicine purchases going to help more poor people by raising more money for state spending or will it end up hurting those who cannot avoid paying the increased tax either directly or indirectly?
An increase in the general excise will hurt everyone, especially the poor.

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