Hawaii Lawmakers Should Not Touch Retirement Income

Levying an income tax on retirement income in Hawaii is bad policy because:

• Retirees don’t require the same level of state services as do younger individuals;
• Many will leave Hawaii if the state starts taxing retirement income (you could call it the “Las Vegas Revitalization Act”);
• Many who have yet to retire will not retire here and leave.
• Chasing many retirees out of Hawaii may wind up costing the state more than it gains by taxing those who remain.

It’s important to remember that retirees — not now paying income taxes on their retirement income — cost the state little but bring lots of economic activity to Hawaii, including normal spending plus disproportionate spending on health care as well as other goods and services that support many jobs.

So, here are my suggestions:

• Cut spending and cut benefits to public workers.  Past Hawaii governments have over-promised and the time to start cutting back is now.  I know it’s hard but it won’t get any easier.  The time is now.
• Improve the effectiveness and efficiency of state expenditures.  (I know you live near us and I know you’ve seen the major dollars spent on hill stabilization on Kahekili Hwy. between Haiku Road and Temple Valley.  Was it wise to spend big money to stabilize already stable hillsides?)
• If additional state revenues are still needed, look to increasing the G.E.T.  Although our G.E.T. is not a pure Value-Added Tax, it’s similar.  And VATs are considered by most economists as the least destructive to the private, job-creating sector.

See this for more info:

Consumption taxes like VAT are often considered superior to other types of taxes because VATs hamstring incentives to invest, save and work less than most other types of taxation – in other words, a VAT discourages consumption rather than discouraging production.

In the diagram above:

• Deadweight loss: the area of the triangle formed by the tax income box, the original supply curve, and the demand curve
• Governments tax income: the grey rectangle that says “tax revenue”
• Total consumer surplus after the shift: the green area
• Total producer surplus after the shift: the yellow area

I suggest that Hawaii lawmakers demand that state government become more effective and efficient and should only consider new tax policies that minimally affect incentives to produce.

Hiking the state General Excise Tax is the best option if more money is really needed — not introducing income taxes on a mobile retiree community many of whom who will leave or never settle here in the first place.

Michael P. Rethman is a Kaneohe resident

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