We are in trying times now, folks. Much of the state is closed. The Capitol and many government offices, including the Department of Taxation, are locked down. People are working remotely when they can, and we are too.
In the middle of all of this, our Governor is telling people not to come to Hawaii. That may be certainly justifiable from a public health perspective. It does, however, have severe economic effects for us. According to a recent article from the Pew Charitable Trusts, the state most reliant on tourism is Nevada, where 16% of its economy (based on 2018 numbers) depends on it. We are next with 10%. Other states that ranked high were Vermont, Florida and Tennessee, all at about 6%. Currently, we are projecting a $300 million decline in tax collections and a loss of 6,000 jobs in the service industry. This may reverse in six to nine months or so, according to the Pew article, because once the crisis passes people will want to travel again, away from the homes they have been cooped up in.
The Federal government, including the IRS, is helping out with a just-passed law that makes sure that workers in general can get paid leave for child care and sick leave for themselves, and gives medium to small businesses a tax credit to help them pay for these benefits.
What can we expect out of State government?
So far, the response from the Department of Taxation is that all tax deadlines are being maintained. No change. Perhaps it’s disappointing, but it’s realistic in that the federal government can print money while state governments can’t.
The economy is hitting the skids and tax revenue is screeching to a halt as well, which may put us into a disastrous spiral. Government continues to trundle along, and the workers that are keeping it moving need to be paid. But the money to do it in the short term is not going be coming from tax collections. So, what can we expect?
First, we can expect government to scrutinize favored industries about dialing back tax and other benefits that were previously granted. Legislators already have started to do this.
Second, we may see renewed vigor in what used to be semi-earnest attempts to raise taxes and fees. Several revenue-raising bills used to advance in the legislature, presumably to keep the bill supporters happy, and then would die at the last minute in conference committee. This time, the outcome may be different.
Third, we may see attempts to appease the general public by advancing relief bills. Maybe we will see proposals to lessen the waiting time for getting unemployment insurance benefits, or to extend tax filing or payment deadlines, or provide additional benefits to employers whose workers couldn’t come in to work. Those might advance in the legislature when the legislature resumes, and then die at the last minute. “Oh, we don’t have the money to provide such benefits,” they may say, with justification.
Our take on the problem is this. Raising taxes and fees will put a damper on the economy at a time when we should be doing everything in our power to support it. As the American Legislative Exchange Council put it in 2018, “Data clearly shows that low tax burdens enhance a state’s chances of performing well economically. On the other hand, a high tax burden reduces a state’s chances of performing well. Of course, other policy variables impact economic performance, but tax burden is most consequential.” We urge lawmakers to resist the urge to follow the somewhat cynical predictions made above. Lead. Grant relief. Don’t take more. Please.
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Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.