(Released on 05/27/07)
So are we still grumbling that the bag of rice just went up in price . . . again? Well, get ready for yet another increase in everything you buy at the store and watch as your pay check buys less than it did last year even though your boss gave you a pay raise.
The cost of living is about to go up yet again, not just because the price of gasoline continues to climb or for that matter the general excise tax rate in Honolulu went up earlier this year to pay for mass transit and is now filtering into the goods and services purchased throughout the state. No, it is because there is a bill pending before the governor that will tack another tax on all goods shipped into the state.
The new tax is intended to pay for the inspection of commercial shipments of goods into the state for the purpose of preventing the importation of invasive species. Originally, the proposal was sparked by the possibility of invasive species migrating from one island to another as a result of the soon-to-be operating superferry. It is believed, that as a result of being able to move vehicles from one island to another, seeds, insects, and other types of detrimental material could be moved from one island to another that may have been, up to that time, free from that type of pest.
And as the bill started out, it was supposed to be a user fee applied to all modes of transportation between the islands and between the state and other parts of the world. However, in the darkness of the conference committee, sometimes called the third house of the legislature, the fee became a tax imposed only on shipping containers. Because the fee would only apply to containers but will pay for the inspection of all modes of transportation, be it the superferry or airplanes or for that matter shipping that does not use containers, the fee has now become a tax as there is no direct relationship to those who will benefit from the inspection and those who will be asked to pay the new tax.
What is more disturbing is that it is being applied at the front end of the transaction chain. In other words, because the fee is applied as the goods enter or leave the state, the cost of the fee becomes a part of the base price of the goods. Built into the base, the fee becomes a part of the starting point as each business that handles the goods marks up the price of the goods as a percentage of that base. So the cost of the goods when sold to the ultimate consumer will be that much higher because the cost of this new tax will have been imbedded in the base off of which everyone calculates their mark-up.
So while lawmakers think that it is “only a dollar” per twenty feet of container length, the impact will pyramid and increase the cost of living in Hawaii. Further, it is patently unfair to residents of Hawaii who will be asked to pick up the tab for the inspection of visitors to Hawaii be they by airplane or cruise ship. It puts those businesses who ship goods in containers at a competitive disadvantage with those who use shipping alternatives and do not use containers. Advocates of the bill point out that this new tax will generate $1 million a year so it can’t be all that bad.
The problem is just that, it is “only a million dollars” a year. The question really is, will that be enough to pay for all the inspections necessary to prevent transmittal of invasive species? Probably not if there are to be inspections of airplanes, cruise ships, and the superferry. So guess what? Since it will probably cost a lot more, next year legislators will argue that the fee has to go up in order to pay for the necessary inspections. So it will no longer be merely a dollar per 20 feet of container length. And soon it will be real money that, we, as consumers, will see in the price of all the goods we purchase in Hawaii.
If, in fact, lawmakers don’t want to fund this invasive species inspection program out of general revenues of the state, then they should make sure that those who benefit from the inspections are also those who pay for the program. Further, the broader the application of the fee to those who benefit will help to keep the charge at a nominal level. That is one of the beauties of the general excise that has a very broad base but, as a result, the tax rate is among the lowest of “sales tax” rates in the nation.
Imposing a fee on all arriving and departing passengers on cruise ships and airlines would allow the fee to be a fraction of a dollar given the more than 7 million visitors to Hawaii. That’s not counting departing and returning residents including those going interisland on airplanes or aboard the superferry. Then there would be nexus between the fee charged and benefit received which in this case is halting the transmittal of invasive species.