TAXWatch: Worst Return on Investment. Again.

Recently, the online site WalletHub published a 50-state study called “2020’s States with the Best & Worst Taxpayer ROI.”  ROI, of course, is the acronym for “Return on Investment.”

The site derived its ranking by comparing two variables:  total taxes paid per capita, and overall government services.

Total taxes paid per capita was a fairly straightforward calculation.  The authors divided the total tax take by the state’s population aged 18 and older.  In that statistic, Hawaii ranked 49th out of 50 states. The 46th through 48th states were Minnesota, Vermont, and Connecticut; the one state to beat us was North Dakota.  All of those states, however, ranked highly in overall government services, and avoided a dreadful ROI score.

To get a score for overall government services, the ranking process was more involved.  Researchers compared 30 different metrics in such areas as Education (including metrics for the quality of the school system and the public high school graduation rate), Health (including metrics for quality of public hospitals and average life expectancy at birth), Safety (with metrics for crime rates and fatalities per vehicle mile), Economy (with metrics for median annual household income and poverty rate), and Infrastructure & Pollution (with metrics for quality of roads and bridges and water quality).  Hawaii ranked 35th in Education, 13th in Safety, 22nd in Economy, and 11th in Infrastructure & Pollution, giving it an overall rank of 35th in government services.

It turns out that with the bottom-scraping score in tax burden and middle-of-the road ranking in overall government services, Hawaii ranked 50th (out of 50) overall.  Its rank was the same as last year.

California was 49th in ROI this year, ranking 45th in tax burden and 34th in services.  North Dakota, the only state to beat us in tax burden, ranked 2nd in services but still finished with a ROI ranking of 48.

At the other end of the spectrum were New Hampshire, South Dakota, and Florida, ranking 1st through 3rd in ROI.

One of the WalletHub experts, a professor of accounting at Monmouth University in New Jersey, had some interesting observations.  When asked, “What’s the most common way local governments waste taxpayer dollars?” he said, “Corruption and favoritism with state funded projects along with allowing labor unions to negotiate unaffordable compensation and benefits for their members [are] attracting votes from those who benefit while discouraging taxpayers from staying in high tax states.”  He also observed, “States such as Wisconsin have faced reality and eliminated benefits including inflation proof retirement plans and lifetime medical insurance to save their states from financial disaster like New York, New Jersey and California face.”

Another expert, a vice president of a college in Missouri, wrote, “All government entities need to spend money as though it is their own.  It often seems as though government employees are not critically reviewing expenditures as to whether they are necessary or whether the expenditure should be done with a different vendor that might be less expensive and more effective.”

Those of you who know about the politics in our state, do you think that any of these comments sound familiar?  We citizens who are dragged around by the scruff of our necks and squeezed until our pockets are emptied would do well to make sure we are getting value for the government we have.  If we don’t speak up, we’ll get the government we have and not the government we want.

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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.