One of the bills advancing through the Legislature this session is House Bill 1537, “Proposing Amendments to Articles VIII and X of the Constitution of the State of Hawaii to Authorize the Legislature to Establish a Surcharge on Residential Investment Property to Increase Funding For Public Education.”

The current draft of HB 1537 has a lengthy preamble worth reading which explains that higher funding is needed for teacher salaries, building maintenance, and addressing a post-pandemic “disproportionate effect on students of color and students from low-income backgrounds.”

Should the bill pass the Legislature, voters would be asked the following ballot question:

“Shall the Legislature increase funding for public education for all of Hawaii’s children and adults by establishing, as provided by law, a surcharge on residential investment property valued at $3 million or greater, excluding a homeowner’s primary residence?”

This is a loaded question that I suspect would not be easily reduced to a quick “yes” or “no” even if we were to put it in front of even the most seasoned legislators, let alone ordinary voters. If I were a senator or representative, my own immediate response would be “yes and no – it depends.”

Thinking Carefully About Different Types of Taxes

Having grown up in Texas, I will tell you right now that I infinitely prefer Hawaii’s tax structure over my home state. Texas is superficially lauded by some pundits as an ideal place to live because it has no state income tax, but what is not said is that whatever money you think you’ll save in not having income tax, Texas government squeezes out of residents with property taxes.

Texas, like Hawaii, has an aggressive public education lobby, and their property taxes are fed into what are called “M&O” or maintenance and operations of public schools. Public education never gets cheaper, so Texas property taxes only get higher and higher and affect more people.

The situation has become so egregious in Texas that candidates regularly campaign on repealing property taxes with the mantra “property taxed is not property owned.” The Texas Public Policy Foundation, a non-partisan research institute, has for years advocated abolishing property taxes and replacing them with broader sales taxes as an alternative M&O revenue stream.

Why is a sales tax for education more equitable than a property tax? First and foremost, sales taxes are a better way to distribute the costs of things labeled as “vital” government services. We like to say things like “Hawaii is increasingly becoming the playground of the rich” but if everyone supposedly utilizes or benefits from public education, then it only stands to reason that everyone should pay for public education equally, not just the rich.

If only “rich” people pay for public education, the outcomes and performance of public education exist in a mental black box for middle and lower income groups. Their only skin in the game is as a consumer, not a stakeholder. If we tax the investment properties of the so-called rich, no matter how good or bad public education in Hawaii is, one can argue and advocate for higher taxes because someone else is paying for it. 

However, the minute that every single Hawaii resident feels the education tax, they will be acutely aware of and demand a higher level of accountability from public education and the lawmakers that support those taxes. In fact, they’ll probably resist new taxes when they’re made to pay for it – and rightly so.

Read “Starship Troopers” by Robert A. Heinlein – the concept that democracies are prone to bureaucratic mismanagement because they vote to make other people pay for things rather than paying for it themselves is an important lesson we need to learn in Hawaii. I already know this has upset some of you – and my response is good, you need to be upset, because upset people take time to read the news and are motivated to pay attention to policy outcomes, not just deceived by platitudes.

We should also be concerned about the power of investment taxes to discourage investment. You want investors to come to Hawaii and bring their money and the opportunities it creates here. Some investors may choose to give to charity, other investors may hire locals, still other locals may keep that money for themselves – but that is their personal choice. We should reward financial success rather than deterring or penalizing it.

The reason Hawaii is becoming “the playground of the rich” is because the rich are the only people who can afford to pay the compliance costs of being in Hawaii’s palace economy. Don’t blame “the rich” for the neo-plantation Hawaii of 2024, that’s the fault of your special-interest-controlled city council and state legislature incumbents. Scaring investors away won’t give locals a fair shot at the American dream, it will just mean they’ll be the only ones left to pay for the compliance costs we created for others to pay.

Inflation And Property Values

The other question you have to ask yourself is how long will $3 million properties be “investment” properties of the rich and famous? The price of housing has ballooned in the last century as a result of a loose Fed monetary policy leading to inflation. In 1920, the average American home cost around $6,296 to own. Today, that number is closer to $495,100 nationwide and $777,000 on Oahu. 

Not to be alarmist, but the time will come in a few decades when a $3 million home will be the average price for everyone wanting a single family home if things keep up. If the Legislature’s intent is to tax the houses of the wealthy, the time will come when taxes designed for the wealthy hit the middle and lower class instead. If that’s the case, where everyone will eventually creep into paying more property taxes, you might as well just get everyone paying for it right now in the form of higher or targeted sales taxes.

Public Education Is Not The Only Thing In Hawaii

Last but not least, people need to understand that public education is important – but I’m sorry to say that public education is not the only thing in Hawaii, and teachers are not the only kind of workers who live here. You’re struggling, and so are we. We are all citizens of the State of Hawaii, not the State of Public Schools and Teachers.

Everyone is short of money, and everyone can use additional funding and higher salaries, but most of us just find ways to make do without calling for tax increases on other people to fund our wants and desires. I’m sorry, but if this is a social contract system of governance, then all of us have an equal right to thrive and succeed in Hawaii, not just certain industries or specific types of employees. 

I agree that we should fund public education, but we should also look for ways to optimize education and control costs. Even healthcare, which is seen as a right by some, is subject to managed care and rationing to reduce costs. Why should education be any different?