Tax cuts have topped Republican agendas for years and are likely to be a key focus of the GOP candidate to be Hawaii’s next governor.
The top Republican candidates for governor have floated proposals for cutting taxes on the sale of certain goods like food or medicine and taking a broader look at Hawaii’s tax system to examine how it affects those who are poor or on fixed incomes.
But even if the Republican nominee can convince voters they are the right pick to lead the state – a long-shot considering Hawaii has not had a Republican governor in 12 years – they’d likely face another challenge in the Legislature, where 71 of the 76 seats are held by Democrats.
Former Republican Gov. Linda Lingle ran into some opposition in the Legislature when she tried to enact similar tax relief measures. In 2007, she unveiled a $346 million tax reduction plan that proposed aligning tax deductions to federal standards, adjusting those deductions to inflation and cutting the state excise tax on 11 basic food items.
Lawmakers instead passed measures to slightly bring down the cost of fuel and created a food tax credit meant for those with low incomes.
“I think it should have been a lot more tax relief,” Lingle told the Honolulu Star-Bulletin.
Even now, it’s hard to predict how lawmakers will decide on tax bills. Each year, there are some bills to raise taxes and others to give tax breaks or credits. And all of that still needs to be balanced against the state budget.
In 2017, lawmakers passed measures to impose higher tax rates on those earning $400,000 or more. And last year, the Senate advanced a bill that would increase taxes on high earners, but the proposal died.
Just this year, the Legislature voted to give every taxpayer $100 to $300 one-time rebates while also making a tax credit for those with low incomes refundable, which should help put money back into their pockets.
“I don’t think it’s fair to say the mood was this way or that way in particular. Everybody throws stuff at the wall and sees what sticks,” said Tom Yamachika, president of the Tax Foundation of Hawaii.
What has not stuck yet is any proposal to chip away at Hawaii’s general excise tax.
Unlike other states that have sales taxes, Hawaii utilizes a general excise tax that charges businesses for the privilege of operating in Hawaii. The base GET is 4%, and every county except Maui charges an additional surcharge.
Businesses are allowed to pass the tax on to customers. On Oahu, for example, that charge appears as a 4.712% sales tax on receipts. The GET is considered one of the most regressive taxes in the nation because it raises the price of virtually everything, putting an additional burden on those with low- or fixed-incomes.
But the GET is a major source of state revenue, accounting for more than half of the state’s $9 billion general fund budget. Revenue from the GET is projected to rise well above $4 billion annually in the next several years.
The top Republican candidates all support eliminating the GET for food and medical items, something Democrats in the Legislature have also pushed for but have not yet passed.
Heidi Tsuneyoshi would take the most aggressive approach to the GET. She proposes cutting the excise tax rate by 50%, a proposal that is almost sure to be dead on arrival in the Legislature given the loss in tax revenues such a measure would entail.
Former Lt. Gov. Duke Aiona takes a measured approach. He said he wants to examine Hawaii’s tax brackets to find additional relief for low-earners.
Activist Gary Cordery proposed freezing property taxes for retirees, implementing a fuel tax holiday and combing through Hawaii’s administrative fees to find those that may be unnecessary.
The candidates also support relief from the state’s fuel tax. Cordery and Tsuneyoshi both proposed tax holidays on gasoline, something President Biden has said he is also considering implementing at the federal level. The state tax per gallon of gas is 16 cents in addition to the federal tax per gallon of 18 cents.
BJ Penn’s campaign said he was not available for an interview. In responses to Civil Beat’s candidate questionnaire published Monday, Penn mentions creating a self-sustaining economy and reducing the tax burden on residents and small businesses without offering specifics.
The candidates also spoke of wanting to work collaboratively with the Legislature and dealing with lawmakers directly.
Former Lingle aides said that helped the administration advance proposals, whether the governor’s name was on a proposal or not.
But throwing a wrench into the tax cut debate is a federal rule that limits how much relief legislatures can provide taxpayers. The Treasury is requiring states that pass tax cuts to demonstrate that they did not use funds from the American Rescue Plan Act to supplant their state’s budget.
That means legislatures that pass tax cuts must also approve other means of raising revenues equal to the amount of cuts.
However, natural tax growth could satisfy those federal rules. For example, some states have seen growing tax bases, which increases state revenues. In Hawaii, rising inflation contributed to record high levels of state tax collections, which could also be considered natural growth. The state is expected to finish the current fiscal year on June 30 with about $2 billion more to spend than initially anticipated.
Those federal rules are set to end in 2024, two years into the next governor’s term, or whenever the state spends all of its federal relief money.
Cordery wouldn’t support across-the-board reductions to the GET but would support exemptions for food and medicine.
At the top of his list of ideas is a proposal to freeze property tax rates for homeowners at the time the homeowner retires. He said that could help older residents living on fixed incomes from paying ever higher taxes as the value of their homes rise.
Property taxes are administered at the county level – not at the state level. But Cordery said he would work with the counties to find those individuals who could benefit from his proposal.
Cordery said he would also try to ax certain state fees. He mentioned Hawaii’s beverage container fee, but said he would still need to evaluate the entire schedule of administrative fees to determine what the state could get rid of.
“We would look at the inception of them, the implementation of them. Are they targeted? Or do they go to the general fund? These kinds of fees are actually taxes and need to be looked at carefully. If we can reduce we’re going to reduce them,” Cordery said.
Like many Republicans, Cordery also wants to shrink the size of government. But he doesn’t want to accomplish that by taking an ax to government positions and cutting workers who are currently employed by the state.
Instead, Cordery proposes leaving positions unfilled after a worker retires. He pointed to administrative roles and maintenance staff he believes perform duplicative jobs. But asked about other important roles in state government – environmental monitors or epidemiologists, for example – Cordery said he would probably only exempt first responders, including police and medical workers.
“I really don’t see any other positions that fall into that category,” he said.
Cordery said he would vet his administration’s proposals in public first by polling Hawaii residents before taking measures to lawmakers.
He wants to include legislative leaders in discussions before introducing measures, but also said he would open briefings to all lawmakers.
Aiona doesn’t support slashing the GET.
“I doubt very much I would get any traction with the Legislature,” Aiona said. “I’m realistic. Any way we can help the people of Hawaii with their cost of living, that’s where I’ll focus.”
Like Cordery, he would support exemptions on food and medicine. He also floated the idea of evaluating Hawaii’s tax schedule to look for ways to save residents more money through potential cuts, particularly for those in poverty – a group of taxpayers Aiona said should not be paying taxes at all.
The federal poverty guideline for Hawaii is $14,820 for a single person. Eliminating the state income tax for a single filer earning about that amount each year could save that taxpayer about $680.
“That’s stuff we could do, but I’m not saying we will,” Aiona said. “It’s got to be strategic in regards to the overall health of our fiscal budget. Again, how does this affect the pain we are all going through?”
Many of those earning low wages are already eligible for federal and state income tax credits.
Before considering any major tax proposals, Aiona said he would need to evaluate the state’s fiscal picture and budget left by Gov. David Ige. He also said his administration would look for areas of savings in government.
Asked for specific areas of government that could face cuts, Aiona said he still needs to evaluate the state budget and did not share any specifics.
Meanwhile, he said he would also direct money toward expanding the agricultural workforce.
Aiona said he and his cabinet would meet directly with lawmakers to get them all on the same page and allow legislators to tell them how they want to communicate.
While he called for more transparency in the Legislature, he also would try to handle disagreements privately. The former judge said he would try to keep negotiations with lawmakers civil, while still recognizing that the administration and lawmakers may try to lean on each other while reaching compromises on bills.
“There’s good leverage and there’s bad leverage. You need to keep the bad leveraging out,” he said.
While Tsuneyoshi also supports GET cuts targeted at food and medicine, she wants to take a bigger ax to the excise tax. The city councilwoman is proposing a 50% reduction in the GET, which amounts to cutting the GET rate by 2%.
That proposal is the least likely of any to come to fruition. Cutting the GET could, in theory, leave state government with $2 billion less to spend in the coming years.
At the same time, Tsuneyoshi also wants to increase payments made into the state retirement system to fund pensions and retiree health plans while also boosting funding for the education system, as well as the state Department of Human Services to provide more mental health services.
She would look for potential savings in government contracts and monitoring any cost overruns.
Tsuneyoshi also said she’d like to continue monitoring the counties’ implementation of a 3% tourism tax authorized by the Legislature last year, although she isn’t ready to amend the law just yet. On Oahu, much of that new revenue is being set aside to fund the Honolulu rail project.
If disagreements arise with the Legislature, Tsuneyoshi said she would try to find common ground with lawmakers.