Hawaiians Loudly—and Successfully—Object to Proposed Big Tax Hike

Published May 24, 2010

A proposal that would have raised Hawaii’s General Excise Tax—the state’s distinctive form of sales tax—was stopped in the House Ways and Means Committee in May, due in large part to a loud uproar from taxpayers and business owners.

Helen Carroll, a licensed realtor in Hawaii since 1988, was one of many business owners who lobbied against the tax increase.

“If they increase the taxes any more, I’m out of here,” she said. “I just can’t afford to practice business in this type of environment.”

It’s a message she also delivered to lawmakers.

Compound Tax Burden
Hawaii’s General Excise Tax (GET) is a multilevel sales tax on all goods and services, including food and medicine. Because of its compounding nature on the gross income, receipts, or proceeds of all business activities, the GET, at a base rate of 4 percent, is comparable to at least an 11 percent sales tax.

In addition, many states and local governments exempt items such as food and medicine from such consumption taxes. That makes the GET more regressive than most sales taxes.

Currently the GET rate in Hawaii is 4 percent except for the island of Oahu, which charges 4.5 percent to fund a $5.3 billion commuter rail project for the island. During the 2010 Legislative session, Democratic state legislators, backed by unions and other interest groups, considered raising the base tax by one percentage point, or a 25 percent increase in Hawaii and a 22 percent increase in Oahu.

The additional money was to have been used to help balance the state budget, which has a $1.2 billion dollar shortfall.

A bill to make nonprofits subject to the General Excise Tax did pass. Governor Linda Lingle (R) has until July 6 to sign or veto it.

$200 Million More
A $10.2 billion budget was passed at the end of the 2010 Legislative session. It includes more than $200 million of tax hikes, even with the failure to pass the General Excise Tax increase.

Jamie Story, president of the Grassroot Institute of Hawaii, said she was relieved the GET hike didn’t pass but was disappointed other, smaller tax and fee increases did pass. Among them: a $1.05 tax per barrel of imported petroleum products, up from 5 cents a barrel.

“We are already one of the highest-taxed and least business-friendly states in the country, and it’s imperative that our legislators cut spending rather than resorting to raising taxes,” said Story.

Another Push Likely
In a floor speech during this year’s legislative session, Sen. Donna Mercado Kim (D), Ways and Means Committee chairwoman, warned a GET increase could pass next year.

“We will be faced with this again next year, and we may have to come in with a broad-based tax,” she said.

Frances Nuar ([email protected]) writes from Hawaii.