Figuring Out What Nickels And Dimes Really Mean

By Lowell L. Kalapa

(Released on 7/27/08)

There was an interesting comment made by a local observer of the state’s economy a couple of months ago when it was reported that the 0.5% county surcharge on the general excise tax imposed in Honolulu had generated more than $211 million.

According to the media report, that worked out to about $634 per household for the 16-month period or about $475 for that same household during the course of a 12-month year. However, the observer noted that while the county surcharge does matter to folks, the impact on the overall state’s economy will be overshadowed by other economic events such as the shuttering of Aloha Airlines and ATA and the closing of several other businesses throughout the state.

That observation belies the lack of understanding of just how pervasive the general excise tax is and the impact that it has on the cost of living and doing business in Hawaii. While paying another nickel or dime every time we check out at the grocery store may not seem like a lot, one cannot ignore the impact of more than $200 million being taken out of the hands of consumers and businesses during the first 16 months that the surcharge was collected. That’s not a nickel or a dime.

The problem with viewing the county surcharge as “nickels and dimes” is that it ignores the impact that the tax has on the goods and services that we, as consumers, purchase each day. Not only does the surcharge apply to the things and services we, as consumers, take home to use, but it applies to the businesses we patronize in the form of the county surcharge on the lease of the store, the shelves on which the goods sit and the tools that help to provide the services we purchase. As the amount of the general excise tax and the surcharge rises, so does the cost of food and services we purchase as the added costs incurred by businesses must be recovered in the price charged.

Saying that the surcharge will not affect the cost of the goods and services purchased is something akin to the comment made by a local bakery saying it would not pass on the added cost of flying its products to the mainland and then back to Hawaii in order to get them to Neighbor Island stores when Aloha Airlines was on the verge of going out of the freight business. Anyone and everyone who has been in business knows that a business can absorb those costs for only so long before it becomes a losing proposition and the business owner has to confront the choice of either raising prices or going out of business.

Then there are those who are quick to point out that a good portion of the general excise tax and, therefore, the county surcharge is paid by our visitors. Well, that might be true, as long as the visitors continue to come to Hawaii. With the prospect of a slumping national economy and the loss of consumer confidence, that is a statement that might not hold up in the coming months. Who then will pay that portion of the surcharge?

Adding a little bit more to the general excise tax rate may not seem like more than a nickel or dime, especially when other states have sales tax rates that are more than twice the general excise tax rate, but when one starts to compare the base of the goods and services subject to the tax versus what the sale taxes are applied to on the mainland, one begins to realize what an impact it has on the cost of living and doing business in Hawaii.

As the cost of everything we consume is affected by the soaring cost of energy, the nickels and dimes the surcharge adds will add up to real money. And if motorists think prices at the pump are high, they should remember that lawmakers temporarily suspended the imposition of the general excise tax, as well as the county surcharge, on gasoline that is blended with alcohol. When reimposed next July, the tax will slap at least another 20 cents on every gallon of gas.

Supporters of the county surcharge might say that the surcharge is for a good cause as it will help to build a mass transit system for Honolulu, but those critics seem to ignore the fact that Hawaii’s families are already some of the most heavily taxed in the nation. As the economy slips into the doldrums again, even the economic activity from the mass transit project will not be enough to offset the rising cost of living in Hawaii. And yes, contributing to that cost will be the county surcharge.

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.