Raising Taxes at This Time Would Be Harmful

Hawaii Republicans against the variety of tax increase bills currently at the Hawaii State Legislature owe a big thank you to Democrat lawmakers in the US Congress and Senate. Why?

Because the latest $1.9 trillion coronavirus relief package that was entirely passed by congressional Democrats with no Republican support could just be enough for Hawaii lawmakers to forego at least some or all of the state’s proposed tax increase proposals this session.

There are no guarantees, but Gov. David Ige already said a sizeable lump of cash from the federal government for the state would “ease the state’s immediate money woes.”

Federal Budget’s Impact on Local State and County Budgets
Without the federal government’s assistance (Hawaii is expected to get $6.1 billion in federal funding from the $1.9 trillion), the state would have had no choice but to increase taxes to meet its budgetary shortfall. Remember that state and local governments are required by law to balance their budgets; while the federal government can incur debt and borrow money to meet its obligations.

People who truly understand how government budgets work, they know a Democrat-controlled federal government is more likely to pass legislation that aide state governments. This in turn relieves some pressure for state government to raise taxes. This has always been the case.

The fantastical, unrealistic world some Republicans tend to have is — they would want a Republican-controlled Congress and Presidency to be tight-fisted in passing legislation that would provide assistance to states; then on top of that, at the state level they would also prefer to reject all or any taxes. Basic math tells you this just doesn’t make sense.

Remember when then Senate Majority Leader Mitch McConnell last April in the beginning stage of the coronavirus said he would rather let state governments declare bankruptcy than receive more federal funding.

Why Taxes Matter
Under such an unrealistic system — minimum federal support and minimum state taxation – Republicans just as well should agree to be living in a third world country where there is practically no government (scant revenues), no services, no infrastructure, no safety nets. Just a few rich people, small middle- and working class, and a vast majority poor. But all of them (including the rich) would share the space of living in an ugly, polluted, crime-infested country with bare infrastructure and few jobs.

On top of that, there would be low consumer buying power (a bigger nail to seal the coffin on their business enterprises than paying taxes) and poorer quality workforce. How so? Because government helps to educate the masses and provide a baseline that enable children to become productive adults and good consumers.

Reasonable Republicans know their wealth doesn’t come for free. They know their tax dollars go toward building an environment of prosperity that includes legal protections, a healthy consumer base, quality workers and infrastructure. And lobbying against tax hikes isn’t unreasonable in and of itself, but encourages checks and balances for equitable taxation and smart, non-wasteful spending.

Taxes should be levied fairly
Nobody likes to pay taxes. But the answer cannot always be a resounding no.

At the same time, lawmakers must tax citizens fairly and look at the burden of taxes considering  the big picture. They must analyze the multitudes of taxes available — income, excise (sales), property, business and corporate taxes, special taxes from capital gains to inheritance to estate, consumption and special fees tax, sin taxes (tobacco, liquor, sugar) regressive taxes – and levy them in a timely manner that would not place extra burden on one specific group. The burden must be shared as proportionate as possible among all groups and visitors included (considering how visitors make use of our islands’ infrastructure).

Senate Bill 56
In this regard, Senate Bill 56as it stands right now before possible House amendments is unfair and could cause more hurt than benefit. The bill wants to raise taxes on Hawaii residents with the highest incomes ($200,000 individuals; $400,000+ married filers) by 5% (from 11% to 16%), increase state capital gains tax, increase state corporate income tax, and boost the state conveyance tax. It’s very clear SB 56 is targeted at the wealthy. While a boost in tax could be fair in one or two of those proposals (small, incremental changes with expiration dates for possible adjustments), there is just too much in this tax package that place too great a burden on one specific group of the population. 

The State Tax Director Issac Choy told the Senate WAM committee SB 56 alone could raise about $100 million extra per year for the state treasury during the proposed seven years it would go into effect.  

On surface, it looks too easy a one-road route from one source to raise that much money without considering other revenue streams. While it also appears that taxing wealthier residents is the best alternative because they have the money, many of them who are in business could resort to passing off the additional tax burden onto their consumers, that in the end, would impact all income-earners from top to bottom.

Now is not the time to be raising taxes
It’s likely that the multiple tax increase proposals were introduced by state lawmakers in the beginning of session as fall back options if the federal government failed to pass another Covid relief bill.

It’s also possible that these various tax proposals could survive the legislative crossover (midpoint) and move on because state lawmakers must analyze how federal money can or cannot be spent (considering stipulations) and how much will go to where.

This is reasonable, just as they possibly could be keeping some proposed cuts and cost-saving measures alive to get the big picture on the best way to balance the budget.

The state found a way to avoid a furlough of government workers as earlier federal money came in and by working with lenders to delay payments.

Likewise, state lawmakers should also find a way now that federal monies have been provided to not raise taxes, especially at a time when money is tight all around.

As travel is showing a strong rebound to the Hawaii islands, this could also mean a comeback of revenues for the state treasury – which is another reason why taxes should not be hiked.

Certainly summer travel will be a boost to tourism.

The state will receive billions more in federal money, again. They must work with that and trim non-essential services where possible.

A big part of smart policymaking is to identify and address risks. State lawmakers knew a furlough would risk hurting families and damaging the economy. Now lawmakers ought to be equally careful to not do harm to other segments of our population and economy. Do not raise taxes at this very fragile, critical time.