Proposed Taxes Could Have Devastating Consequences
by Sherry Menor-McNamara
In the last few weeks, we have seen plenty of reason for optimism. O’ahu recently entered Tier 3 of its reopening strategy, allowing for larger gatherings, and more capacity for our local businesses. Vaccination efforts are gaining momentum, with the Department of Health opening vaccine appointments to those over 65 on Monday, along with many others in essential business categories. And, more visitors are coming to Hawaii.
However, while optimism is cautiously growing for our economic recovery, businesses continue to face the devastating impact of COVID and their ability to provide services to customers. Hawaii’s businesses are at a precipice, with the steady beat of news about businesses being forced to close for good because of the pandemic. Pali Lanes is a recent example of a business that is closing its doors, joining other household names like Loves Bakery, and Dillingham Saimin.
Despite the precarious situation our economy and businesses are in, several bills being considered at the Legislature this session, will further exacerbate any efforts toward economic recovery. Amongst them are a plethora of revenue generating measures that have or are being considered due to the impact of Covid-19 on the state’s revenue. One of these, SB56, introduced by Senator Stanley Chang, would, among other things, increase the personal income tax rate to 16% for taxable years beginning after December 31, 2020 for single filers earning more than $200,000 per year. In addition, the bill would increase the tax on capital gains from the current 7.25% to 11%, and impose a single corporate income tax rate at 9.6% (currently at graduated rates of 4.4%, 5.4%, and 6.4%).
The Chamber of Commerce opposes this measure because of the significant effect the increases would have on Hawaii’s economy, the rebuilding of our local businesses, and the restoring of jobs. The enactment of a multi-faceted broad tax increase during a recovery phase will further hurt our economy. Hawaii’s business climate is not what it once was and this bill, if enacted, will reinforce the image that Hawaii is a poor place to live, work, and invest. This would put up yet another barrier for struggling businesses and individuals, who have spent the last year trying to survive the economic storm brought on by the COVID-19 pandemic.
Hawaii’s business community is at a critical point — where any additional business taxes could mean the difference between closing their doors permanently, filing bankruptcy, or laying off employees.
In a survey of businesses conducted in partnership with Omnitrak and with the support of Central Pacific Bank Foundation, the Hawaii Chamber of Commerce Foundation found the economic impact of the COVID-19 pandemic continues to have dramatic consequences for local businesses. Eighty percent of the businesses that participated in the survey are small businesses with 20 or fewer employees. These companies expect the long road to economic recovery will extend into April of 2022. Revenues of businesses surveyed fell an average of 45% from 2019 to 2020, with no significant differences between O’ahu and neighbor islands. Also, almost half of these businesses reduced their workforce, and reported this percentage would have been higher if not for the federal Paycheck Protection Program (PPP) Funds.
Over the last year, businesses have been asked to step up and help slow the spread of COVID-19. This came in the form of complete shutdowns, ever-evolving restrictions, and for some, fundamentally changing the way business is done. While our business community continues to step up to the challenge, now is not the time to place an added burden on our economic recovery. The Chamber of Commerce will continue to advocate for sensible economic policy and stand with our local businesses as we look toward a better year for our island economy.
SHERRY MENOR-McNAMARA is the President and CEO of the Chamber of Commerce of Hawaii.
