Editor’s note: This is the first in a series of stories that looks closely at specific issues facing Hawaii and how the Democratic gubernatorial candidates would deal with them. Also coming this week, Civil Beat teamed up with Hawaii News Now for in-depth interviews with the top candidates for governor in both the Democratic and Republican primaries. Watch “The Job Interview” on Hawaii News Now beginning on Monday at 8 p.m. Civil Beat will be posting the interviews on our Governor Race election page, which is where you can find all our coverage of the run-up to the primary.
Lt. Gov. Josh Green wants to eliminate the state excise tax on food and medicine and impose a new fee on tourists to shift some of the state tax burden to visitors. Vicky Cayetano is ready to entertain the idea of capping rent increases as a way to provide relief to residents who are struggling with the sky-high cost of living.
Civil Beat asked the leading Democratic candidates for governor about their near-term, highest-priority initiatives for reducing the cost of living here, and Green and Cayetano offered up those ideas as their top-tier proposals.
Both candidates said their housing plans will also be crucial components of their efforts to make life in Hawaii more affordable — they agreed housing is the main driver of Hawaii’s high cost of living — and their housing initiatives will be described in a separate, upcoming article.
U.S. Rep. Kai Kahele, who is also considered one of the top contenders in the Democratic primary, declined to be interviewed for this series, saying through a spokesman he is dissatisfied with the way Civil Beat has covered the governor’s race.
Hawaii’s retail excise tax is now 4% in Maui County and 4.5% in Honolulu and the rest of the state, and Green’s proposal to eliminate that tax on food and medicine is not a new idea. Republicans and some Democrats have been proposing that for many years, and lawmakers briefly considered such exemptions this spring before scrapping the bill.
Green describes that tax on food and drugs as “the most regressive tax we have in society,” and he is framing the idea in a way that may finally make it more palatable to the Legislature.
Green is coupling the excise tax cut, which would cost the state up to $150 million per year in lost revenue, with a proposed new $50 “climate impact fee” on all incoming tourists age 12 or older. Assuming 7 million to 8 million tourists stream into Hawaii each year, the new fee would raise up to $350 million annually, he said.
As Green put it in a KITV candidate forum earlier this month, “We want to change the system so that we don’t have to bear all of the taxes in the state of Hawaii.”
Cayetano said she also supports a moratorium on the excise tax on food, medicine and diapers, but wants to give that tax break to people who earn $100,000 or less per year. She said that tax break could be implemented by providing a rebate to lower-income taxpayers when they file their returns each year.
One problem: According to the state Tax Department, Hawaii already exempts prescription drugs from the general excise tax.
The state also exempts from the excise tax all food purchases made through the federal Supplemental Nutritional Assistance Program, formerly known as food stamps. That caused about $500 million in food purchases to be exempted from the excise tax last year, so most poor people don’t pay the tax on food, according to the tax department.
The state also provides refundable food tax credits that were worth about $29 million last year to lower-income residents who file state taxes.
That means exempting all food sales from the excise tax would mostly benefit higher income taxpayers, and tourists. The tax department estimates a blanket tax exemption on all grocery sales would cost the state $268 million a year, considerably higher than the estimate of lost revenue offered by Green.
The strategy of replacing the revenue lost to the excise tax cut with a tourist fee may help get buy-in from lawmakers, who have been willing to increase taxes on visitors, who don’t vote in Hawaii. For example, just last year the Legislature passed bills to jack up fees on rental cars, and authorized each of the counties to impose their own 3% hotel room taxes.
Green said if he becomes governor, he will immediately introduce a bill that includes both the excise tax relief and the new tourist fee, so that lawmakers consider them as a package.
Mufi Hannemann, president and CEO of the Hawaii Lodging and Tourism Association, said that organization has long supported site-specific fees — such as those paid by visitors to Hanauma Bay — that support the sites where they are collected.
However, Hannemann said in a written statement that “we believe there are some logistical and administrative challenges that must be addressed before such a fee can be implemented and collected. We look forward to having a deeper discussion with LG Green about his idea and we commend him for examining ways in which we can mitigate the impacts of overuse of our precious assets.”
When asked to be more specific, Hannemann said the proposal raises questions such as who will collect the fees, and whether visitors who travel interisland will be hit with the fee more than once.
Green is suggesting a variety of ways the state might use the extra revenue from the climate impact fee, including fixing or expanding parks, repairing roads that are threatened by sea-level rise, funding affordable housing, expanding free preschool programs and subsidizing the use of rooftop solar.
It may also help the state to support services for “climate refugees” who arrive in Hawaii from Compacts of Free Association nations, he said.
Cayetano, meanwhile, said she would look closely at a cap on annual rent increases for the next two years, especially for senior citizens on fixed income, as a way to reduce the cost of living in Hawaii.
She suggested the cap would not apply to very high-end properties, but might be appropriate for rentals of $4,000 per month or less “to help the working people survive.”
Cayetano did not offer any additional details, and she also stopped short of fully endorsing the idea.
“I wouldn’t call it a proposal — I’m not saying I would propose this. But I would say this — I think that at least for the next two years, to give people some kind of relief, that is something that we should consider,” she said. “If you look at rentals today … it is over the top.”
Rent control is another idea that has been kicked around at the Legislature and rejected. Most recently, the Senate Commerce and Consumer Protection Committee last year spent just two minutes considering Senate Bill 52, which would have limited annual rent increases to no more than 10% per year.
The committee quickly shelved the bill after hearing from the Hawaii Association of Realtors and others who opposed it.
Ken Hiraki, lobbyist for the Realtors, argued that “rent control does nothing to increase the supply of rental housing and, ultimately, increasing supply is the true long-term solution to Hawaii’s rental housing shortage.”
“Rent control discourages the construction of more rental units, making the problem even worse. Unless a rent control law permits a fair rate of return over time, housing providers may not be able to maintain their units,” Hiraki said in written testimony on the measure.
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