A letter to the editor in the Feb. 22 edition of the West Hawaii Today misrepresented my position on a bill — HB 1586, relating to taxation — and I wanted to take this opportunity to set the record straight.
I signed onto this bill (along with 17 other representatives) because it proposed a significant income tax reduction for low- and middle-income families. It was one of several bills about taxation that I signed in order to further a discussion about tax system reform with the goal of reducing the tax burden on Hawaii’s residents. What this bill proposed was an income tax reduction, to be offset by a decrease in the amount of the transient accommodations tax allocated to the counties. Presumably, counties would then have to consider using property taxes to make up the difference. We deferred the bill in the finance committee last week because I don’t think it is the right solution at this time, and I prefer other bills that accomplish this without changing the county share of TAT.
The Tax Foundation submitted testimony on this bill that noted, “it is an attempt to fix various problems in the tax system with more of an integrated approach … at the same time lawmakers should realize that pieces of this bill, when considered in isolation, are likely to trigger much weeping and gnashing of teeth.” Well, this lawmaker now realizes that. However, despite any controversy, I stand by the need to have these difficult conversations about important issues. It’s not always easy, but it is what I signed up for when I decided to run for office.
Many people don’t realize that unlike every other state in the nation, Hawaii’s public education system is funded solely at the state level. No property taxes, which are the counties’ major revenue source, go toward funding our public schools in Hawaii. Because public education is funded at the state level, real property taxes in Hawaii have remained low. This is a positive for residents struggling with the high cost of living, but has also allowed investors, many of whom are not Hawaii residents, to enjoy paying some of the lowest tax rates in the nation on investment properties in our state. Many of these properties are used as vacation rentals, taking them out of the long-term rental pool, decreasing inventory, and exacerbating affordable housing issues.
I would not support the county increasing property taxes in a way that raises taxes for owner-occupied homes or second homes that are being used as affordable rentals. However, there are other property tax classes besides the homeowner class including time shares, vacation rentals, and hotels — all of which have rates below national averages. If the counties can find a way to adjust county tax rates to export more burden to visitors and investors, and help to offset a net reduction in taxes for Hawaii’s resident population, it would be a more progressive approach to taxation overall. It is certainly better than continuing to go after increases of the general excise tax (GET), which is our most regressive tax, and burdens those who can least afford it the most. (The County Council proposed a bill last year to increase the GET by a half a percent, which would have cost an average working family of four an additional $400 per year.)
All of these tax reform ideas need to be discussed without the usual knee-jerk reactions. We must stop treating this issue as if the county and the state are opponents instead of partners, so that we can work together to figure out the best solution to make our tax system more rational and equitable for Hawaii’s residents. Accomplishing that goal has always been my intent, and I will continue to work toward this on behalf of my constituents.
Rep. Nicole Lowen is a state representative for House District 6 (North Kona: Kailua-Kona, Holualoa, Kalaoa), and a member of the House Finance Committee.