Ka Wai Ola - Office of Hawaiian Affairs, Volume 6, Number 10, 1 ʻOkakopa 1989 — Taxes and You [ARTICLE+ILLUSTRATION]

Taxes and You

By Lowell L. Kaiapa, Director Tax Foundation of Hawaii

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When are there enough taxes?

There are a lot of observations about how mueh Hawai'i residents pay in state and loeal taxes. In most cases the reports put Hawai'i in the "high tax" category more often than not. In a survey eonducted by the Asso-

ciatea rress iast month, Hawai'i eame in second in the highest tax burden per person category fo!lowing on the heels of Alaska where the per capita tax burden is $2,439. Hawaii's residents, by comparison, carry a tax burden of $1,866 per person whieh captured that second spot. The AP survey noted, however, that Hawai'i, Montana and Oklahoma were the only states to have realized an increase in state tax collections of more than 20 percent during fiscal year 1989 Another AP survey noted that Hawai'i led the country in giving tax relief to its residents by cutting taxes by more than 5 percent of total revenues. Of course, that tax cut figure included the one-time $125 tax rebate credit approved by lawmakers during this past session. So, is Hawai'i a high tax state? And, if it is, ean taxes be reduced without jeopardizing the health and welfare of our island community? If an analysis is to be made of whether or not taxes are too high, or for that matter whether we have enough money to cover the cost of state programs, care should be exercised. For example, one ean make a cursory observation that most people believe that taxes are too high or that few states tax food or medical services. Thus, the tax burden must indeed be high in Hawai'i. It should be remembered that since mueh of our island's economy is based on the visitor industry, some of the taxes collected are paid by our visitors. Conversely, what is paid in taxes by our visitors means that there is that mueh less for our visitors to spend on discretionary expenditures such as another pair of slippers or another mu'umu'u. So what is the proper means of measuring how mueh īn taxes we as residents pay to state and loeal governments? Taking the total amount of taxes collected and dividing that number by the number of residents is the generally accepted means of measuring tax burden. In recent years, Hawai'i has continued to rank in the top 10 states with the heaviest tax burden. That is, on a per capita basis, Hawai'i has one of the highest burdens of state and loeal taxes among the 50 states If we believe that taxes are too high, ean something be done about bringing that tax burden down to more reasonable levels? Before one ean answer that question, since it will result īn a loss of revenues, the question of whether or not we ean afford a reduction in revenues based on the amount we spend on public programs needs to be addressed. Although it would be easy to project what state spending programs will require over the next few years by merely increasing current costs by a given percentage, such a forecast would be subject to debate as it assumes that the current level of spending is acceptable. While that debate may preclude a forecast of expenditures, Hawai'i has a unique element whieh provides a means by whieh to predict state spending over the next few years. As readers may or may not recall, the same Constitutional Convention whieh established OHA also approved the

imposition of a ceiling on the amount of state expenditures. Although not all details of how the ceiling was to operate were outlined, convention delegates reasoned and specified that state expenditures should grow no faster than the growth in the eeonomy whieh generates the tax revenues for state programs. The legislature later provided that this eeonomie growth was to be defined as the average of three years growth in the state's total personal ineome. To a large degree, this state spending ceiling has been fair to both the taxpayer and the state lawmaker who ends up spending the taxpayer's dollar. With the exception of this year, lawmakers have adhered to the spending ceiling, albeit appropriating right up to the edge of the ceiling. Using the ceiling to determine how mueh ean be spent over the next few years, by using forecasts of total personal ineome, we ean get a good hold on how mueh in tax dollars will be needed to keep state government running. A recent staff report of the state Tax Review Commission undertook this very exercise in order to determine whether or not the commission would have the flexibility of recommending a reduction of taxes. The findings of the report, using the spending ceiling as the guide for expenditures and the of-

ficial revenue estimates of the state made by the state Council on Revenues, produce an interesting result. The study indicated that indeed, Hawaii's tax system produces revenues in excess of what would be allowed to be spent under the state general fund expenditure ceiling. It estimates that by the fiscal year 1995, the state would have more than $800 million in surplus cash. Of course, thisis based on the assumption that the tax laws will remain unchanged and the forecasts of revenue continue to hold. So what does this all mean for you, our reader? Yes, what we have believed for years as taxpayers, that taxes are high in Hawai'i is indeed true. The tax system produces more than what is required to keep state government running. This leads us to the conclusion that taxes ean be reduced without jeopardizing state operations and all of this talk that we need to be prudent with our state taxes needs reexamination. Finally, as taxpayers, the question we should ask our state officials is why is there a need for government to take our money and hold it when we are just as capable of using those funds for ourselves. As we eome upon the 1990 session of the legislature, there should be no excuse from lawmakers that tax reduction is not possible.