Last year, Hawaii increased taxes on income, real estate sales, hotel rooms, cigarettes, and smokeless tobacco. Tax hikers claimed the higher levies were necessary to eliminate a massive hole in the state budget. At the time, ATR argued that it was spending, not revenue, that was the problem in the Aloha State. We are vindicated in 2010, as the state faces a $1.2 billion gap less than a year after a variety of punishing tax increases.
But Democrats in the state legislature refuse to accept this reality. They are at it again this session, proposing a host of tax increases to fund their predilection to frivolous spending. And, as usual, proponents of higher taxes are attempting to spin and sell them to the public as something they are not.
One of the likely tax hikes is a $1.50 per barrel increase in the tax on petroleum products – an eye-popping 3,000 percent tax increase that would drain $33 million annually from Hawaii’s economy. Artificially increasing the price at the pump for Hawaii drivers during a recession is disturbing enough. Perhaps more unnerving is proponents’ attempts to mislead the public to support the tax increase. They argue its purpose is to raise money for renewable energy projects, but the facts do not bear that out. A full 60 percent of the revenue raised from the tax increase will go directly into the general fund to finance Hawaii’s overspending problem.
Lawmakers also look to impose two regressive tax increases on their constituents. The first is a 20 cent-per-pack increase in the cigarette tax. Less than a year after the legislature increased this tax to one of the highest rates in the country, they are likely to pass another tax hike on the backs of the poor. In Hawaii, nearly 29 percent of adults earning less than $15,000 are smokers, while only 12.5 percent of those earning $50,000 smoke. If the cigarette tax passes, those low-income individuals will pay a staggering 12.2 percent of their income to the government; their counterparts earning the state median will pay only 2.9 percent
The second regressive tax increase is a 25 percent General Excise Tax (GET) hike. This tax consumes a larger portion of low-income residents’ monthly budgets than their high-earning peers. The GET is a particularly economically damaging tax as it is Hawaii’s version of a gross receipts tax, which leads to taxing goods and services multiple times and significantly distorting economic activity. Further, an increase in the GET will cause more damage to a reeling tourism industry, already hit by greedy politicians last year via a 28 percent increase in the hotel occupancy tax.
On Tax Day it is important as ever to remember the negative effects of tax increases on prosperity and economic growth. Liberals in the state legislature are obsessed with the fallacy of government-led job creation and growth. It’s time to rein in spending in the Aloha State rather than fostering perpetual budget holes and tax increases that are turning the most beautiful state in the union into the ugliest to do business.
For ATR’s letter to the legislature in opposition to the energy tax, click here.
For ATR’s letter to the legislature in opposition to the GET and cigarette tax increases, click here.