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Zenith Achieved For Burden On Taxpayers

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By Lowell L. Kalapa

(Released on 1/13/08)

It should not have come as a surprise to learn that nearly 10,000 residents left Hawaii last year contributing to a renewed out-migration of residents similar to that which occurred during the 1990’s.

Economists attribute this to the high cost of housing in Hawaii and perhaps the generally high cost of living in Hawaii. However, what many seem to overlook is the fact that the high cost of government is the major culprit behind the struggle to survive in Hawaii. And lest one say that it is the poor who are being squeezed out of Hawaii, that is the farthest from the truth.

The truly poor do not have the means to leave Hawaii. Those who are leaving are from the struggling middle-class workforce with just enough means to get out of town but not enough to survive. That’s because Hawaii has some of the steepest income tax rates and brackets of those states that levy a state income tax. While rates and brackets were overhauled back in 1998 with the changes taking four years to implement, Hawaii still has one of the lowest thresholds at which it imposes the personal income tax and the maximum rate is imposed at a level where the taxable income is still only five figures.

Last year, embarrassed by the fact that they had to do something to comply with the constitutionally mandated refund, lawmakers provided a paltry refund and then only to those with adjusted gross incomes of less than $60,000. Plus they used the federal definition of adjusted gross income which includes pension income. Wait until all those seniors find out that they won’t qualify for the refund credit! And to parry the jousts from the administration that called for tax relief, lawmakers reenacted the food tax credit, but again only to those with federal adjusted gross income of less than $50,000.

Again the middle-class worker was left out of the formula for tax relief. So it is no wonder that the exodus is underway. Instead of providing tax relief for the working class, lawmakers find it much more sexy to provide tax breaks for specific industries or specific types of activities. By adopting these breaks in the name of creating jobs or spurring on certain types of activities, lawmakers are missing the point that it is the working middle class that has little or no tax relief. Instead, the very lawmakers who rue corporate welfare are more than willing to hand out tax credits to taxpayers who are wealthy enough to invest a couple of million dollars in high technology ventures or the development of ethanol plants or film makers.

And why is it more important than ever for lawmakers to enact tax relief for the working middle class? Hawaii has amongst the lowest unemployment rates in the nation. It is not that the economy is doing so well as it is the shrinking workforce. Not only are workers aging, but those who would otherwise enter the workforce are finding it more attractive to move to the mainland where the cost of living is a lot less and young people can realize their dream of buying their first home and providing a better quality of life for their young families.

And why tax relief? Because it is the one thing that public policy makers can do to start making living and working in Hawaii more affordable. Some may say that except for the county surcharge in Honolulu, tax rates haven’t gone up in years. In fact, the legislature lowered tax rates. Ah, but that is where the slight of the legislative hand comes into play.

Lawmakers have found ways to turn up the heat by adopting obscure fees and charges to raise the money they like to spend. It started more than 15 years ago, when the fortunes of the state general fund turned sour and lawmakers resorted to new fees to fund pet programs. For example, they raised the marriage license fee to fund domestic violence programs as if there was some sort of connection between being married and beating up your partner. And when that increase in the marriage license fee didn’t produce sufficient funds to fund the domestic violence programs, they raised the fee yet again.

Similarly, a few years ago the need to better fund emergency medical services throughout the state posed a funding dilemma. Instead of placing it as a priority to be funded out of the general fund, they paid for it with a hike in the vehicle registration fee figuring those services were need by all the accidents caused by motor vehicles. Never mind the injured hiker or stranded hang glider!

These are but two examples of how lawmakers have deftly added to the already heavy burden of taxes and fees in Hawaii. Before even more middle-class workers exodus the state, lawmakers must consider tax relief for them.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

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