Could Hawaiʻi feasibly repeal its general excise tax on food and medicine?
The state's broadly-applied general excise tax continues to face contention, even before the state Legislature opens next week.
Gov. Josh Green has pledged to repeal the GET on food and some medicines in campaign promises and during his inaugural speech, but some are critiquing the choice — including influential lawmakers.
The GET, which is similar to a sales tax seen in other states, is applied to services and goods throughout the state at 4%, with counties tacking on an extra half percent for their own revenues.
This fiscal year, the tax is anticipated to bring in more than $4 billion dollars to the state, according to the latest estimates from the state's Council on Revenue.
"Many states kind of envy the Hawaiʻi general excise tax because it tends to, on the surface, it looks like a very low rate," Kurt Kawafuchi, chair of the Council on Revenues, said earlier this week.
Since it's so broad-based, "it collects so much money and it's relatively stable, that’s why other states like it," he continued.
Most states only get about 23% of their revenues from similar taxes, yet Hawaiʻi can get upwards of around 37% from the GET, Kawafuchi said.
Green has called the tax regressive in that it is applied to necessities, like food and medicine, and has made promises to eliminate the tax.
"Getting rid of the tax, the general excise tax on food and medicine, in my opinion is a straightforward way to go," Green said. However, I want to acknowledge the good points that have made already by (House Speaker Scott Saiki) and others, that we would lose that 30% of the tax that comes from travelers from tourists."
Tom Yamachika, president of the Tax Foundation of Hawaiʻi, said ideas like this have floated around in the past, but have "never gone very far."
One of the tough parts for legislators is how to actually flesh out the tax code — specifically differentiating between what is exempt and what isn't. For example, should food bought from a grocery store be taxed, or not taxed, at the same rate as pre-prepared food from a fast-food restaurant?
"Drawing the lines between different kinds of food has always been very, very difficult in other states that have sales taxes," Yamachika said. "Some of them do have food exemptions, and it's been kind of a nightmare in those states. I don't expect it to be any easier here."
While the Governor has not strayed from the full elimination of food and medicine, he has suggested alternatives, like possible tax breaks.
During a briefing before the state House Finance Committee, Green said this could target just the people he wants to help. He said tax breaks could be applied to those making lower wages to offset costs, and the state would continue to collect the taxes more broadly from residents and tourists, without a shift.
"Say someone's out there making $400,000 a year they're not asking for the tax break from food or medicine. Or the traveler that comes in from California that goes to Costco, they're not asking for the tax break," Green said.
It’s likely that bills and more fleshed-out plans will be introduced next week when the state Legislature opens.
"So again, per what I said up front, whatever the best idea is that will help people the most, believe me, I'm signing it if you send it," Green said.