By Lowell L. Kalapa
(Released on 07/22/07)
Don’t taxpayers find it interesting that somehow they seem to come at the end of the line, or make that the bottom of the barrel, when it comes to the legislature’s agenda?
In responding to the news that state tax revenues had come in at a pace just about half of what was forecasted, legislative leaders arrogantly took a “we told you so” attitude in explaining why they did not sweeten the amount of tax relief provided by this year’s session. Little did they mention the other half of the corollary and that was that they loved spending what money they could from the pot that could have provided tax relief. Nor did they seem to mention that they did little about pulling back on tax credits and tax incentives handed out to a select few taxpayers.
Perhaps there was not enough to sell lawmakers on the fact that taxpayers are beset with one of the heaviest tax burdens in the nation and a tax system that exacerbates the cost of living and doing business in Hawaii. No, there is more pizzazz in saying that lawmakers are helping to grow the high technology industry or the film industry than there is about helping the poor working stiff or the mom and pop neighborhood store deal with burgeoning property tax bills and rising cost of health care insurance and workers’ compensation insurance.
For example, the film industry recently touted the fact that the newly revised digital media tax credit attracted some 27 new productions to film in Hawaii. At the maximum cap of $8 million a pop that could amount to more than $200 million for those productions. Just how far could $200 million have gone toward alleviating the tax burden on all businesses in Hawaii or for that matter the working middle class that is struggling just to survive in Hawaii while searching for the “affordable” home?
No doubt lawmakers will cite the many “needs” of Hawaii’s population from social services to housing to health care and criminal prevention, but have lawmakers ever asked why Hawaii’s people are beset with these many problems? Could it perhaps be that very few can make it here on their own because the cost of living and supporting state and county government is so very high? It seems somewhat inefficient to try and cure all the problems when, as we are told in other areas, it would be much cheaper to prevent these problems from occurring in the first place.
Probably the most egregious of Hawaii’s taxes is the state general excise tax because its rate is so low by comparison to sales tax rates found on the mainland, yet it is the top producer when it comes to the amount collected from this tax. This is because, unlike the retail sales tax found on the mainland, the general excise tax is imposed on almost all transactions including services which are usually not taxed under most retail sales tax schemes.
However, what really makes the general excise tax a major contributor to the high cost of living in Hawaii is the fact that it is imposed on purchases made by businesses. Under the retail sales tax structures in most states, business-to-business transactions are not subject to the retail sales tax because those transactions are viewed as necessary for the production of income and are implicit in the creation of goods and services for sale to the ultimate consumer. Remember, the sales tax on the mainland is a tax on the final consumer and, therefore, the emphasis is on a transaction at retail, not for further resale as part of a business’ products or services.
But here in Hawaii, the general excise is imposed on all transactions including purchases made by a business that will use the goods or services in the course of producing the goods or services it sells to its customers. As a result, the cost of the tax paid and passed on to the purchasing business must be recovered by that business, so the cost of the tax is folded into the final selling prices of the goods or services sold to the business’ customers.
Even the rent paid by the business on its warehouse or retail store incurs the state general excise tax. The slightest bump up in the general excise tax rate, like the recent 0.5% rate increase for Oahu’s mass transit project, will have a profound impact on the cost of living for everyone in Hawaii. But lawmakers refuse to do anything about alleviating this effect, instead preferring to collect and spend those tax dollars to “cure” the ills of our community.
What lawmakers need is a basic lesson in economics and an understanding of the tax burden in Hawaii.