Hawaii worst for tax burdens, report says

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Photo: Emily Metcalf

HONOLULU — Hawaii ranks worst in three major categories in the seventh annual “Rich States, Poor States” report, which tracks states’ economic policies based on 15 policy areas.

Hawaii has no sales tax; residents pay a general excise tax for goods and services, including food, medical services and medical prescriptions, and the taxes are imposed at every level.

Hawaii has the highest “sales” tax in the nation — about $42.62 per $1,000 of personal income is taken by the state — and, when the excise tax is equated to sales tax, Hawaii has the single most burdensome tax on goods.

Tom Yamachika, president of the Tax Foundation of Hawaii, explains Hawaii’s GET is “sneakier” than a retail sales tax.

“You see a sales tax once on your retail invoices, while our GET can be imposed many times during the economic chain of events that ends with a retail sale. In that respect there are winners and losers, as the tax favors the big business that handles more links in the supply chain itself instead of relying on others who then get taxed,” Yamachika said.

Hawaii ranks at the bottom for its 16 percent estate or inheritance tax, bringing in just $6.9 million in death and gift taxes in 2013, a report by the Senate minority shows.

Economist Dr. Arthur Laffer;  Stephen Moore, chief economist at the Heritage Foundation; and Jonathan Williams, director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council, wrote “Rich States, Poor States.”

The authors also take issue with Hawaii’s lack of workers rights. Hawaii is a “Right-to-work state.”

Both public and private unions are strong in Hawaii. As 4/7 Wall Street reported May 30, in Hawaii, New York and Alaska, “more than 22 percent of workers were union members last year,” compared to other states with rates at 4 percent.

Hawaii received other notable mentions.

The state is ranked 48th with a marginal personal income tax rate of 11 percent. Just two other states have higher income taxes. New York, at 12.7 percent, is 49th, and California, 5oth, comes in at 13.3 percent.

For combined federal corporate tax and state corporate tax rates, Hawaii is listed at 39.2 percent or 2.4 percent below the worst state — Iowa at 41.6 percent.

In overall economic outlook, Hawaii was 40th.

Senate Minority Leader Sam Slom’s budget and research office analyzed the report.

Slom said he has serious concerns about Hawaii’s economic outlook and agrees with the authors when they say most politicians know instinctively taxes reduce the taxed – even if they don’t care to admit it.

“Why then, does our Legislature continue to have the highest sales tax burden and some of the highest personal income tax rates in the nation. When is our government going to get it?” Slom asked. “You can’t overtax the people to support bad spending habits, and then expect people to stay and invest in our state.” 

Slom, the only Republican in the 25-member Senate, said he consistently introduces bills to alleviate these burdens, but the majority has blocked his efforts.

Senate Ways and Means Chair David Ige, who is running for governor as a Democrat, declined to comment, but the Hawaii GOP criticized him this week for sponsoring several bills to increase taxes while in the Senate.

Ige proposed a gross income tax on every graduate of the University of Hawaii for the first 10 years of employment after graduation. With his Democratic colleagues, he supported measures to increase the state’s general excise and increase Hawaii’s income tax to 11 percent.

Willes Lee, the national committee chair for the Hawaii Republican Assembly, said: “Our politicians, Democrat and Republican, continue to raise taxes, and fees. That helps drive up the cost of living. It drives down our standard of living. Until voters demand politicians committed to helping the middle class, expect to pay more in taxes.”

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