Hawaii’s economic outlook was ranked as the worst state in three categories published in the most recent edition of “Rich States, Poor States” by the American Legislative Exchange Council, (ALEC). They include:
- Sales tax burden — $42.62 per $1,000 of personal income is taken in “sales tax” — (Hawaii does not have a traditional state sales tax but does have the broadest “general excise tax” (GET) in the nation, which when equated to sales tax is the single most burdensome tax on goods in the U.S.
- Estate/Inheritance tax is levied – 16% estate tax resulting in Hawaii receiving approximately $6.9 million in death and gift tax in 2013.
- Right-to-work – The option to join or support a union does not exist in Hawaii. Hawaii law requires union membership in order to be employed in most public sector jobs.
Hawaii is also ranked #48 for a top marginal personal income tax rate (11%), and is only beat out as the worst state by New York at 12.7% (#49) and California at 13.3% (#50). At least 9 states do not tax personal income, and most others are in the single digits.
U.S. state corporate tax rates show Hawaii at only 2.4% below (39.2%) the worst state of Iowa which is at 41.6% of combined federal corporate tax and state corporate tax. Note that Mexico’s combined federal and state tax rate is 30%, Korea is at 24.2%, and Ireland’s combined rate is 12.5%.
As for investment, in 2014 Hawaii ranks the 16th worst state or country out of a list of 77 for a top marginal capital gain tax rate of 29.4%
When it comes to the number for tax expenditure limits, Hawaii ranks one point above the states with the worst or least amount of expenditure limits.
In the overall ranking for economic outlook, Hawaii came in at #40 out of 50 states, which is an increase of 6 points. That increase can be explained by the #1 rating calculated on our pre-2014 minimum wage increase (ranking based on $7.25 per hour). It is expected that Hawaii will fall from this top spot as the authors of Rich States, Poor States state that “The Congressional Budget Office recently reported that raising the federal minimum wage from $7.50 to $10.10 an hour would destroy about 500,000 jobs by pricing low skilled workers out of the labor market. …every 10% increase in minimum wages causes about a one to three percent decline in low wage jobs. This is no way to help the poor. …Most small businesses’ primary expense is labor and increasing the minimum wage means increasing labor costs. This means that some businesses that are on the edge of profitability and cannot absorb these costs will end up going out of business.”
Rich States, Poor States also indicates there is cumulative domestic migration loss of 26,409 people from 2003 to 2012, with a net domestic migration loss of 2.4%.
State Senate Minority Leader Sam Slom stated, “I agree with the authors of Rich States, Poor States when they write “Most politicians know instinctively that taxes reduce the activity being taxed – even if they do not care to admit it. Congress and state lawmakers routinely tax things they consider “bad” to discourage the activity.” We see this when we tax tobacco and alcohol. 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? You can’t overtax the people to support bad spending habits, and then expect people to stay and invest in our state.”
Slom added “The Senate Minority has consistently introduced bills to alleviate these burdens. Unfortunately, the majority has consistently blocked these efforts to relieve taxpayers.”
– From the Hawaii State Senate Minority Research Office (edited)