Posted tagged ‘Taxes’

We’re growing the wrong tax tree

April 11, 2017

I published this post in 2010 and again in 2013. For those of you who are new to Better Hawaii, and for all of us who could use a reminder, I think it’s worth repeating.

Let’s ignore, for the moment, the fact that the IRS tax code is over 44,000 pages, is so complicated that even tax experts don’t understand it, and desperately needs simplification. Let’s ignore the benefits of a national sales tax or a flat income tax.

Think about this: like a tree struggling to shade us from harm, our tax system needs more sunshine, more pruning, and a lot less graft.

In fact, we are growing the wrong tax tree entirely.

Our current tax system is an overgrown banyan tree, with roots extending down and spreading over the whole economy. The federal government has higher income tax rates, ranging from 0% to 35%. The states have lower income tax rates, ranging from 0% to 11% – with Hawaii at the top – but are dependent on federal funds and must comply with unfunded mandates.

It makes more sense to have a tax system like a strong pine tree, simple and orderly. The federal government, which has national responsibilities and a larger tax base, should have lower tax rates. The states, which directly care for citizens but have smaller tax bases, should have higher tax rates and not rely on the federal government for funding.

The only rational explanation for this upside-down, overgrown tax code is that the federal government wants the power to redistribute taxes among the states. They want to create welfare states and ensure that states are dependent on the federal government.

Does this make non-sense? Do you have another explanation – or better yet, solution? Does anyone have ideas about how states can reclaim their power and independence from the federal government?

We’re growing the wrong tax tree (redux)

April 9, 2013

I originally published this post on April 6, 2010. For those of you who are new to Better Hawaii, and for all of us who could use a reminder, I think it’s worth repeating.

Let’s ignore, for the moment, the fact that the IRS tax code is over 44,000 pages, is so complicated that even tax experts don’t understand it, and desperately needs simplification. Let’s ignore the benefits of a national sales tax or a flat income tax.

Think about this: like a tree struggling to shade us from harm, our tax system needs more sunshine, more pruning, and a lot less graft.

In fact, we are growing the wrong tax tree entirely.

The Wrong Tax Tree

Our current tax system is an overgrown banyan tree, with roots extending down and spreading over the whole economy. The federal government has higher income tax rates, ranging from 0% to 35%. The states have lower income tax rates, ranging from 0% to 11% – with Hawaii at the top – but are dependent on federal funds and must comply with unfunded mandates.

It makes more sense to have a tax system like a strong pine tree, simple and orderly. The federal government, which has national responsibilities and a larger tax base, should have lower tax rates. The states, which directly care for citizens but have smaller tax bases, should have higher tax rates and not rely on the federal government for funding.

The only rational explanation for this upside-down, overgrown tax code is that the federal government wants the power to redistribute taxes among the states. They want to create welfare states and ensure that states are dependent on the federal government.

Does this make non-sense? Do you have another explanation – or better yet, solution? Does anyone have ideas about how states can reclaim their power and independence from the federal government?

Being flexible vs. breaking promises

April 26, 2011

When is changing your mind considered being flexible? When is it considered breaking a promise?

As a candidate, Hawaii Governor Neil Abercrombie promised not to raise the General Excise Tax (GET) – a tax levied on wholesale, manufacturing, and retail goods, including food and medicine. It’s an unfair, pyramiding tax that forces us to pay taxes on the taxes we pay – but that’s another issue.

Released on August 18, 2010, Abercrombie’s “Recovery and Reinvestment Plan” boldly declared, “The General Excise Tax will not be raised. Given the public’s lost confidence in government, no reasonable argument can be made to raise the GET. Government will have to make better use of the revenues that it has and grow the economy if more revenues are needed.” On September 7, 2010 in a candidate forum, Abercrombie stated, “I’m against raising the GET tax, without equivocation.” The next day in a KITV interview, he confirmed, “We’re not going to raise the GET tax.”

By March 9, 2011, Abercrombie decided that “We’ll just see what transpires.” His spokesman explained, “If a measure to raise the GET passes out of the Legislature because other elements of his plan are not adopted, he will of course consider it as the people’s will.” A week later, on March 16, 2011, Abercrombie admitted that he is “flexible” about raising the GET. His staff clarified, “Raising the rate of the general excise tax is not currently being considered” (emphasis added).

Perhaps succumbing to public criticism, on March 30, 2011 Abercrombie stated that he does not support a GE tax increase, and that we can balance the budget “All without doing the GET.” He said that a GET increase is a bad idea financially and politically – “It won’t wash with people,” he admitted.

I hesitated to write this, because Better Hawaii is focused on challenging people to find solutions, not complain about problems. But in the end, I think that it’s important and worthwhile to discuss when it’s okay to change your mind. I think it depends on whether there is new information or revised circumstances.

So what made Abercrombie re-think his stance on raising the GET?

How much new information was available? We don’t know what new information Abercrombie received as governor; we only know the information released the previous governor. But we already knew about the falling tax collections (for some reason, the government calls this “revenue”), the rising costs of sewer and road repairs, and the problem of unfunded pensions.

How has the situation (the economy) changed? Abercrombie could not have predicted the Japan earthquake and tsunami in March that has led to declining tourism, business slow-downs (for example, the Kona Village Resort has closed indefinitely), and costly repairs. But certainly, Abercrombie knew that we still have higher-than-normal unemployment, lower salaries, furloughs, and a Honolulu rail system that is on track to cost billions of dollars.

Has everything already been done to balance the budget? Abercrombie may think he has done as much as he can. But all I’ve heard about are raiding the Hurricane and Rainy Day funds and programs that Abercrombie wants to “restore.”

On this issue, raising the GET to pay for government, is Abercrombie justified in changing his mind? Do you support or oppose his “flexible” thinking? Should he have changed his mind a second time, back to his original stance?

Join a Tax Day Tea Party rally

April 14, 2011

Taxes and more government spending aren’t the answer to our economic crisis. They may help some people, but only by taking away from others.

Tomorrow on April 15, 2011 the third Honolulu Tax Day Tea Party rally will be held at the Hawaii State Capitol Building from 4-7 pm. On Maui, the second Maui TEA “Taxed Enough Already” Party event will be held at Hoaloha Park in Kahului from 2-6 pm. On the Big Island, the Kona Tax Day Rally will be held on Queen’s Highway by the Kona Hawaii Temple from 4-6 pm; and the Hilo Tax Day Tea Party will be held at the Hilo Bayfront King Kamehameha Statue from 4-6 pm.

Please join Hawaii taxpayers to show your support for fiscal responsibility.

April 6: Celebrating Tax Freedom Day

April 12, 2011

It is with some irony that I write, Congratulations! On April 6, we celebrated Tax Freedom Day, the day that Hawaii taxpayers have earned enough money to pay for this year’s federal, state, and local taxes. The Tax Foundation (www.taxfoundation.org) calculates this date every year using government data on income and taxes, not including the deficit.

According to the Tax Foundation, there are five major tax categories: individual income taxes, payroll taxes, sales and excise taxes, corporate income taxes, and property taxes. We each have work for 96 days just to run our government, but today we are working for ourselves – 6 days earlier than the national Tax Freedom Day on April 12.

Now for the bad news: get out your wallet – by April 15, we have to pay taxes for 2010.

Something to remember: freedom isn’t free, but don’t allow our legislators to price us out of the market!

Tax Watch: Tweaking the general excise tax

February 22, 2011

In the 2011 Hawaii Legislative Session, there are numerous, confusing proposals to increase, decrease, exempt, and fine-tune the General Excise Tax (GET). The GET is the tax we pay on goods and services at every level of production, from wholesale to retail, including taxes on the taxes we pay.

Here’s a quick run-down of proposed bills that affect the GET (let me know if I missed anything):

NEW General Excise Taxes have been proposed for hospitals, infirmaries, and sanitaria (HB178); income from a life settlement, bank-owned life, or corporate-owned life insurance policy issued after 6/30/11 (HB798); and a host of currently exempt organizations – see Part III, including service and facility providers for the homeless, public service companies, public utilities, fraternal benefit societies/associations, and more (SB1532).

General Excise Tax EXEMPTIONS have been proposed for fuel sold from a foreign-trade zone to common carriers for use in interisland air transportation (HB123); local agricultural products (HB286); transactions between a common paymaster and related persons (HB848 and SB1107); federally tax exempt companies that supply potable water (HB911); food and medical services (SB269); intermediary business transactions (SB849); fundraising activities by charitable organizations (SB850 and SB853); and food (SB852).

General Excise Tax SURCHARGES have been proposed for country water infrastructure at 0.5% (HB460); and commercial activity that utilizes the State’s ocean resources at 1% (HB698).

General Excise Tax INCREASES have been proposed at an additional 0.5% (HB567); and an additional 1% for five years (HB1631).

The Legislature also offers some CREATIVE General Excise Tax proposals, like a five-year exemption for qualified small business manufacturers (HB183); an annual exemption for qualified school supplies, computer supplies, clothing, and books “beginning on Wednesday of the last full week of July and ending in 5 days on the following Sunday” (HB364 and SB755); a four-year reduction in the General Excise Tax rate to 1% (HB799); a repeal of the 0.5% Honolulu transit surcharge offset by a 5% casino gambling tax (HB1536); and tax holidays for 3 days during each of four specified weekends in March, June, September, and December (SB851).

These ideas may be helpful (or not), and save us money (or not), but they make the tax code even more complicated and confusing for everyone.

Instead of trying to tweak it, let’s repeal the Hawaii GET entirely – and replace it with a reasonable state sales tax on retail-level goods and services, excluding food, drugs, and medical services. That makes a lot of sense to me, and it would benefit everyone.

Let's Repeal the GET

Please contact your elected representatives by mail, email, or phone, and tell them that we can’t afford the GET we have, much less confusing changes to the GET tax code. Contact your representatives in the House and Senate.

Starting over with the tax code

July 20, 2010

What if the Hawaii tax code disappeared overnight and we had to start all over? What if our government had to design tax returns that fit on one page, with one page of supporting information (if necessary)?

What if we could force the tax return people to sit down in a room with a computer, no Internet access, and a TV camera to broadcast all of their discussions?

If we had to start all over again, here are five ways to make the tax code simpler and easier to understand:

* State sales tax on retail sales, NOT a general excise tax (GET). The sales tax would tax all retail-level goods and services, perhaps at 7%. It would exclude food, drugs, and medical care. There would be no taxes at the manufacturing or wholesale level, which would save us all a lot of money because the prices of foods and goods would decrease. There would be no Internet or out-of-state sales, because we don’t have the power to impose a tax on another state.

* Flat state personal income tax, not a progressive tax. Personal income (salaries, wages, tips, commissions, bonuses, prize winnings, gambling earnings, royalties, and pass-through business income) would be taxed at a single flat rate, perhaps 5%. The standard deduction would be lower, so that more people would pay taxes at a lower tax base. We would eliminate most tax credits for individuals, except for education and child care expenses, health care expenses, retirement contributions, and charitable contributions. I know that many people would be angry about losing the homeowner’s tax credit, but maybe we need to shift our priorities to having a home, not necessarily owning a home.

* Flat state business income tax, not a progressive tax. Business income (sales, royalties, licenses) would be taxed at a single flat rate, perhaps 5%. We would eliminate most tax credits for businesses, except for a small business tax credit to encourage entrepreneurs. Tax credits to lure businesses to Hawaii would have to be on a graduated scale, with smaller tax credits in succeeding years or for additional projects.

* End state income tax withholding. In a way, our income taxes are “hidden” because they are withheld from our paychecks and we never even have the money in the first place. If we eliminate withholding, we’ll see how much we are really paying in income taxes when we fill out our tax returns. In addition, it would reduce the paperwork for businesses; after all, why should businesses collect taxes for the government?

* No taxes on investment income (interest, dividends, and capital gains), up to a set amount that is adjusted for inflation. Investment income over that amount would be taxed at a low rate, perhaps 3%. We want to encourage savings and investment, and discourage frivolous spending. We shouldn’t penalize savings; the more money we save, the more money the banks can lend in our communities.

We can’t control the federal government – not unless other states join Hawaii in calling for a complete overhaul of our tax system. But we can work to change Hawaii’s tax system.

We all deserve reasonable taxes that we can all understand, and we can make it happen. How else can we simplify our taxes? If you disagree, what are your suggestions?