When state Sen. Roz Baker announced in her committee room Wednesday that her colleagues had agreed to a plan to increase the general excise tax to help long-term care providers, supporters applauded and issued heartfelt thanks.
In their view, a tax hike is well worth the investment in helping the state’s growing elderly population.
But increasing the GET — essentially Hawaii’s version of a sales tax — has traditionally been like taking a bite of forbidden fruit. It’s rare that lawmakers or top administrators agree to make people pay more for goods and services. Perhaps that’s because Hawaii is already such an expensive place to live.
And yet, the GET is a tempting source of guaranteed revenue — Oahu’s GET was increased in 2007 to pay for the rail system.
Already, under a law signed by Gov. David Ige last year, all four counties are authorized by the state to enact up to a 0.5 percent GET surcharge from Jan. 1, 2018, to Dec. 31, 2027, as long as the additional revenue is used for public transportation projects.
In the past several months, elected officials on Maui, Kauai and Hawaii counties have raised the possibility of increasing their islands’ surcharge to match what Oahu is doing for rail. It’s an especially appealing option because the counties have long struggled unsuccessfully to get a larger share of another key source of revenue, the transient accommodations tax.
A Lot At Stake
Raising the GET means big bucks in state and county coffers.
On the Big Island, for example, a 0.5 percent GET increase would have meant about $1.7 million more revenue last September, the Hawaii Tribune-Herald estimates.The figure is based on the $14.6 million in GET actually collected that month and reported to the state Department of Taxation.
Back at the Legislature, meanwhile, in addition to Baker’s caregiver bill, SB 2478, there is a Senate bill calling for a 1 percent GET increase to pay for broad educational reforms and air conditioning for classrooms. The Hawaii State Teachers Association estimates that the increase would bring in $750 million annually.
Senate Bill 2586 passed Michelle Kidani’s Education Committee on Wednesday. Another Kidani measure, SB 2599, requires that the additional revenue be deposited into a special account in the general fund for Department of Education operations, including salaries and maintenance costs.
Both bills now head to Ways and Means, the Senate money committee, where they are certain to be heavily scrutinized.
UPDATE:Baker’s long-term caregiver bill, which cleared her committee on Commerce, Consumer Protection and Health on Wednesday, awaits a vote in Suzanne Chun Oakland’s Human Services Committee. A vote was scheduled Thursday, but there were not enough votes. The measure was deferred until Tuesday.
How Does It Pencil Out?
Baker’s bill calls for a 0.5 percent surcharge on the GET, which is currently 4.5 percent on Oahu and 4 percent on the other islands.
Now, imagine a 1 percent GET increase on top of that to pay for education reform. Then imagine the other three counties follow Oahu’s lead and adopt the 0.5 percent surcharge for transportation projects.
Even though tourists pay about one-third of the GET, one can see how all the surcharges may soon prove untenable, even if there are sunset dates.
And then remember that it’s an election year.
While Hawaii’s unemployment is very low, construction cranes dot Honolulu’s landscape and tourism is flush with visitors and spending, Ige and state legislators have warned that the good times will not last forever. Then there’s the rising unfunded liabilities for state and county workers and retirees.
The GET is levied against a business’s gross receipts. Wholesale transactions are subject to a 0.5 percent tax and insurance commissions are charged a 0.15 percent tax.
Unlike a sales tax, the GET is levied on the seller and not the purchaser. But it can have the same effect as a sales tax because businesses are allowed to pass those costs on to customers.
There is also a use tax, which is part of the GET and is applied to imported goods used in Hawaii. The use tax is 0.5 percent when the import is sold for retail, leased or rented, or used to manufacture or construct other products. For all other imports the tax is 4 percent.
Together, the general excise and use taxes make up a big source of revenue for the state, typically generating half of the state’s tax income – about $2.8 billion in fiscal 2014. Individual and corporate income taxes, tobacco and liquor taxes and the TAT also contribute to the state’s general fund.
As soon as there is a potential new revenue source in the state, lawmakers pounce on it. This session, for example, there are bills seeking to levy the GET on electronic smoking devices and medical marijuana sales.
But lawmakers also grant many GET exemptions, usually on a short-term basis, often as a way to stimulate growth in certain industries. A bill this year calls for ending the GET and use tax exemptions for renting or leasing aircraft or plane engines for interstate transportation of people and goods.
A Regressive Tax?
As much as there is sympathy for taking care of loved ones and fixing schools, there are myriad arguments against increasing the GET. Many of them are being made in opposition to Baker’s caregiver bill.
The Tax Foundation of Hawaii said in written testimony that the GET is “perhaps the worst tax to increase because of its broad-based application.” The increase would “drive more and more businesses out of operation and with them the jobs Hawaii’s people need,” the foundation stated.
“Not only will the general excise tax increase the cost of doing business, but it will affect the cost of all other non-food purchases, be it clothes, textbooks for university students, rent for those people who don’t own their shelter which are generally the poor and middle class, the price at the pump for gasoline — everything right down the line,” the foundation stated.
The GET is a regressive tax, the foundation testified, meaning poor people are affected disproportionately.
Grassroot president Kelii Akina pointed to studies that ranked Hawaii as having the 15th “unfairest” tax system in the country and ranking the state last among all states “for its sales tax burden.”
But Larry Nitz, an economics professor at the University of Hawaii Manoa, disagreed that the GET is regressive.
“For a social insurance program with benefits available to nearly all of the population, it is necessary to look at expected lifetime benefits and expected lifetime tax,” Nitz said in testimony on the care bill. Pointing to income simulation models, he said, “We can show that relative to their lifetime income, lower income residents will receive higher net lifetime benefits than upper income residents.
Nitz said the caregiver bill would result in creating jobs in the health care industry.
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