Barrel Tax Just Another Money Grab

What a temptation it is to be able to say “I told you so” but then again, that usually is not a polite thing to say without hurting the feelings of those who were mistaken.

But in this case it underscores the fact that usually you can’t trust some elected officials to give their word and truly mean it. Such is the case of the proposed barrel tax on every drum of petroleum product that is imported into the state. The environmentalists touted the proposal as a way to make Hawaii independent of fossil fuels and to get the farmers to kick in, they also promised that the funds would be used to insure that Hawaii’s food supplies are going to be clean and safe to eat.

But surprise, lawmakers are now not only raising it by a dollar per barrel, but they are thinking of raising it by a dollar fifty cents per barrel and taking some of the money to help balance the state general fund budget. So much for commitment to sustainability, energy independence, and going “green.” The current nickel per barrel was just that toe in the door that now has mushroomed into “real” money.

You would think that the taxpayers would know better by now that you can’t put much faith in the words of elected officials. Look at the legislative track record of pulling the rug out from under taxpayers starting with the hotel industry when the industry asked for a 2% hotel room tax rate to be earmarked for the building of a convention center. When the bill emerged from the legislative darkness, hotel owners found themselves with a 5% hotel room tax with none of the proceeds earmarked for the building of a convention center. And by the time they got around to selecting a site for the convention center, the rate had increased to 6%.

Then there is the “commitment” of the legislature to education when they earmarked $90 million annually in general excise tax collections for the repair and maintenance of school facilities. That “commitment” lasted for only a few years when the cash cow started to dry up and they turned their “commitment” into bonded debt.

Then there is the conveyance tax which for years remained at a nickel per hundred dollars of value. It was implemented solely for the purpose of being able to indicate the value of a real property transaction so that the real property assessors could have some idea of how much homes and buildings sold for during the past year so they could do a better job of bench marking valuations for real property tax purposes.

But when lawmakers needed to fund affordable housing efforts and supplement funding for the state parks, the conveyance tax caught their eye. At first it was increased only a “skosh,” make that a doubling of the tax rate from a nickel to ten cents. Then lawmakers wanted to empathize with local residents that foreigners were invading the local real estate market, driving up housing prices. So they designed a system to impose the highest tax rates on million dollar transactions and even higher rates on residential property that wasn’t going to be owner occupied. Never mind that non owner-occupied residential real property includes homes or apartments that will be rented.

Then the general fund started to go belly up last year and the conveyance tax became a tantalizing target to raid. But the beneficiaries of the earmarked funds cried foul as they lamented the loss of positions, not having enough money to develop affordable housing to the point that lawmakers jacked up the tax rate yet again, making the purchase of a new home even more unaffordable.

So the barrel tax, which started as a toe in the door, is now turning into a big foot in the door. Given the track record there is no doubt that once adopted lawmakers will return to this trough again and again when they need more money for their pet projects and programs. Because the tax is imposed at the front end of the consumption chain, by the time the cost of the tax is paid by the retail consumer, they won’t know who is responsible for the higher cost of the gallon of gasoline or for the higher cost of the energy utilities or for the higher cost of their groceries. No, they will just blame the oil companies for ripping them off or the grocer who is gouging them for their box of cornflakes. No, the consumer will not hold lawmakers accountable, they will blame their local retailer who has no say over the cost of the barrel tax.

What is even more abhorrent is the barrel tax will provide automatic funding for the privately run county economic development boards with absolutely no oversight by the legislature. Boy, if the Honolulu Symphony or the Healthy Start program could have been so lucky! So much for accountability and commitment!

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.