Sidenotes:

(1) Susan Hooper. “Paradise tax” drops. Honolulu Advertiser. February 19, 2000. p. A1.

(2) The Hidden Cost of the General Excise Tax. Tax Topics, Fall 1996. Tax Foundation of Hawaii.

(3) 1997 Government in Hawaii: A Handbook of Financial Statistics. Tax Foundation of Hawaii. Table 7: State and Local Tax and Fee Burden. p. 13.

It’s time to cut the Paradise Tax

Anyone who has shopped in Mainland supermarkets knows that prices are much lower there than Hawaii. The difference—about 27% according to a recent survey—we call the Paradise Tax (1). We say it is the price we pay to live here. But it is an unnecessary price because it could be much lower.

The primary causes of the Paradise Tax are hidden taxes and hidden regulatory costs.(2)

The hidden taxes we pay are those imposed on businesses by our state and county governments. Business then has to pass these taxes along to us in the form of higher prices. To a business, a tax is just another cost; it is no different than, say, rent or utilities or payroll.

Hawaii is the only state to pyramid the 4% GE tax by piling tax on tax. For example, a supermarket buys many supplies it needs in the process of supplying you with food. These include such items as cleaning materials, computing services and rent. It must pay the 4% tax on these and the only way it can recover this tax cost is by passing it along to you and me in higher prices. When our supermarket has to pay a higher property tax rate than a residence, the higher cost again finishes up being paid by us at the checkout counter.

These are our hidden taxes. And it is one reason why Hawaii’s per capita taxes are the fifth highest in the nation.(3) And this does not take into account our hidden regulatory costs.

For example, when Mainland supermarkets buy farm produce, highly competitive deregulated trucking companies deliver it at rock bottom prices. When those same farmers ship to Hawaii it comes to us in ships that are protected by the Jones Act from any real competition. Some estimates are that without Jones Act protection, our ocean shipping costs would be half of what they are currently.

From the docks to the supermarkets, the goods are carried by our regulated, and thus protected, Hawaii trucking companies. We are the only state in the U.S. whose trucking companies are still regulated and whose prices are fixed. These prices are essentially those that the trucking companies agree upon themselves. Thus, Hawaii’s trucking prices are higher than what they would be if our truckers here had to compete as fiercely as do those on the mainland.

All these hidden costs are why food prices are so high. And similar hidden regulatory costs and hidden taxes cause higher prices for virtually everything else we buy in Hawaii.

Anybody who has tried to reduce either a family or business budget knows that the savings you make come from the myriad little cuts you can make by snipping here and whittling away there.

This is what we have to do with Hawaii’s hidden taxes and hidden regulatory costs. If we are ever to get the Paradise Tax down to a reasonable level we must steadily chip away at these hidden taxes and regulatory costs that make life so tough for many Hawaii families.

Cliff Slater is a regular columnist for the Advertiser whose footnoted columns are at: www.lava.net/cslater