Category Archives: Taxes

ALEC Ranks Hawaii as Worst State in Three Economic Categories

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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)

Download the PDF Version of Rich States, Poor States at ALEC

Senate Minority Research Office Press Release (PDF)

Rail Project re-bid is Intended to Create an Illusion of Lower Costs

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From the Hawaii State Senate Minority Office: 808 586-6780

Senator Sam Slom does not believe that dividing the building of nine transit stations into three smaller bid projects is intended to lower costs.[1] Slom said today “The fact that HART is breaking this contract up into three projects of three transit stations each is just a way of creating the illusion of lesser costs. It is not likely to lower costs. Everyone knows if you buy in bulk your unit cost is lower, and the less items you buy the more the unit cost grows. If the project is $110 million more buying bulk, how much more do you think it is going to be buying 3 at a time?”

“The way HART is releasing the information makes it sound like they are doing the public a favor. What this reveals is the rail plan was too optimistic, or the bids and tenders were poorly managed. For a project of this scale the public deserves transparency and honesty. The Senate Minority will continue to strip away the spin and act as the voice for our taxpayers.” says Slom.

Senator Slom adds “It is not too late to cancel the project and cut our losses. That is, in fact, what I would urge the county to do. This is just the start of blowout costs and delays. The cost doesn’t just encompass money, but also a loss of 1500 parking spaces at Aloha Stadium, the destruction of dozens of small businesses, and extended periods of traffic congestion and major road works. The longer the disarray, the more effect on tourism, trade and the community. And who really wants to see a rail along our beautiful waterline?”

[1] http://www.hawaiinewsnow.com/story/26491482/rail-project-initial-opening-delayed-1-year-as-hart-cancels-station-bids

Additional Commentary from Senator Slom on KHVH Radio 830 AM.

 

 

2014 April GET Collections Still Down Compared to 2013

Senator Sam Slom continues to urge spending restraints because of the slow recovery of the state and national economies.

The 2014 April General Excise Tax (GET) collections are still down compared to the same month last year, although slightly improved on March 2014.

GET-8-2014The USA national Gross Domestic Product (GDP) numbers for Quarter 2 are up 4% in comparison to Quarter 1[2], although on an annual basis the GDP numbers for 2014 are relatively low at around 1.1%.

Senator Slom explains “For the short term, it indicates that both the state and national economies are somewhat improving, however, the improvement is only on a quarter-to-quarter basis. This does support that there is only a very slow recovery going on for Hawaii and the nation. Hawaii needs to be frugal in its spending of taxpayers’ monies, as the economy is very fragile at this moment, and both the state and the nation are cash poor.”

“To ride this slow ride out of recession, Hawaii needs to put away some cash reserves, just like our everyday families do. At this time, as the Hawaii Senate Minority has previously indicated, Hawaii is due run out of cash reserves somewhere between 2017-19 if no significant changes are made in cutting costs (or raising revenue), possibly resulting in a constitutional crisis of the unbalancing of Hawaii’s budget.”

Hawaii’s Downward Spiral Of State Tax Collections Is Alarming

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According to the recently released Department of Taxation’s monthly tax collection reports[1], the general excise tax collections for the first quarter of 2014 are down 4.6% in comparison to last year. To make matters worse, the Federal Bureau of Economic Analysis[2] recently downgraded its -1% estimate of real gross domestic product for the first quarter of 2014 to -2.9%, which is, by far, the worst quarter since the recovery began in mid-2009.

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The Senate Minority is pleased that the Abercrombie Administration has finally taken a step to curb a portion of the government overspending in the recent decision to restrict 10 percent, or $14 million, of state discretionary spending, however, Senator Sam Slom points out that “this is clearly a reactionary step to the March tax collection reports and steps should have been taken much sooner. The Senate Minority has long cautioned that Hawaii’s economy has not turned a corner yet.” Senator Slom notes “when you talk to small business owners in various industries across the state, it becomes apparent that many businesses have not yet recovered from the recession.”

“While the legislature entered this year’s legislative session, with a Governor boasting of a record high surplus of $844M and a very optimistic outlook of the state’s economy while skirting the subject of our state’s unfunded liabilities (employee retirement and medical benefits) of over $22 billion dollars, it is becoming more and more apparent that the growth spurt in our economy was short lived. Based on these recently released tax collection reports, it is even more important we tighten our belts and identify sensible cuts for the long term to ride this slow recovery out.” says Senator Slom, Hawaii’s Senate Minority Leader.

Senator Slom’s more conservative outlook of the state’s economy was validated by the Council on Revenues, which downgraded the state revenue growth projections from 4.1% at the beginning of the year, to +3.3% shortly prior to the legislative session, then 0% on March 11th, and most recently on May 29th to -0.4% . According to Senator Slom, the recent -0.4% projection of state revenue is still overly optimistic. Slom notes that “if the general excise tax collections for the first quarter of 2014 as well as the recently released U.S. GDP statistics are taken into account, further downgrades of state revenues should be expected.”

Rather than waiting on the next Council on Revenues tax revenue projections, which will be released sometime in September, Senator Slom urges the Abercrombie Administration to take immediate action to avoid the current $450M biannual budget deficit from growing even larger.

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Last Year’s $844 Million Surplus is Borrowed from the Future

The State Council on Revenues significantly reduced the revenue growth projections that are used to determine the budget spending levels for the two upcoming fiscal years. Specifically, the Council lowered the revenue growth forecast for FY 2014 from 3.3% to 0% and for FY 2015 from 7.4% to 5.5%. This downward forecast is important because it will be used by the legislature in the current budget negotiations. At the present time, only the Governor and the House have formally introduced their respective drafts of the state operating budget. However, the House budget is expected to cross over to the Senate this week and the Senate is expected to release its version of the state operating budget in the following weeks.

Now, what are the implications of the current forecast with respect to the various budget drafts and the $844M carry-over surplus?

The downward forecast means that the state has now fewer projected revenues that could be used to fund some of the proposed spending initiatives. As Table 1 indicates, both the Governor and the House budget drafts are not in balance. Because of the imbalance, more than $500M of the current $844M carry-over surplus is projected to be swept away.

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In addition, what is largely excluded from the discussion in the media is the fact that the current budget doesn’t account for the required payments the state is obligated to make to pay down its unfunded liabilities for the EUTF. The EUTF is the health insurance trust fund for current and retired state and county employees. Last year, the governor signed into law ACT 268, which requires that the state in FY 2019 will have to pay 100% of the annual required contribution that is needed to pay down the current $13 billion unfunded liability for the EUTF. Under the current budget proposals, only $100M of the required $500M is included. In absolute terms, it really means that the projected carry-over balances in FY 2015 are not somewhere around +$300M but rather closer to -$100M.

Finally, what does the downward revenue forecast signal about the overall economy?

Last year’s $844M surplus has often been politicized and interpreted as a sign of an improved economy. Coming out of the recession, many states experienced significant budget surpluses similar to Hawaii’s. However, according to The Rockefeller Institute, “Any of the unexpected surges in state revenue growth in 2013 is (sic) at least in part borrowed from the future. It will be tempting to treat unexpected revenue growth as a sign of continuing economic improvement, when it could mean instead that future revenue will be lower.”[1] This week’s Council on Revenues confirms the notion that last year’s surplus is not based on an improving economy and that the legislature should be cautious with respect to spending decisions on new initiatives.

 

[1] State Budget Crisis Task Force: Final Report, page 4. (2013). http://www.statebudgetcrisis.org/wpcms/wp-content/images/SBCTF_FINALREPORT.pdf

by Paul Harleman, Senate Minority Budget Director