Rail tax could cost a family $900 more
By Mike Leidemann
Advertiser Transportation Writer
Some Honolulu families could pay an extra $900 a year if the state excise tax is raised to finance a rail transit system on O'ahu, economists said yesterday.
Businesses in Hawai'i pay the state a 4 percent excise tax on their gross revenues, including revenues from the tax that they charge consumers. To compensate for this, merchants are allowed to pass on the total effect of the excise tax to the consumer. Example: Consumer buys a $1,000 sofa. Merchant adds a 4.166 percent "sales tax" for total price of $1,041.66. Merchant pays state excise tax of $41.67. If the excise tax is increased to 5 percent, the effect on consumers could be to raise the tax they pay from 4.166 percent to 5.263 percent.
How tax works
Businesses in Hawai'i pay the state a 4 percent excise tax on their gross revenues, including revenues from the tax that they charge consumers. To compensate for this, merchants are allowed to pass on the total effect of the excise tax to the consumer.
Example: Consumer buys a $1,000 sofa. Merchant adds a 4.166 percent "sales tax" for total price of $1,041.66. Merchant pays state excise tax of $41.67.
If the excise tax is increased to 5 percent, the effect on consumers could be to raise the tax they pay from 4.166 percent to 5.263 percent.
"No way. I do not support raising taxes to pay for rail. I'm totally against it," said Kahala resident Susan Liquido. Opinion in the informal Advertiser survey was running almost 10 to 1 against increasing the excise tax.
Two legislative committees on Monday approved proposals that would allow counties to increase the 4 percent excise tax on goods and services by up to an additional 1 percentage point to pay for transportation projects.
If approved by the full Legislature and county council, that increase could raise $296 million a year to pay for a proposed $2.6 billion rail line from Kapolei to Iwilei, according to the state Department of Taxation.
While there's no way to say how much such an increase would cost an average or typical family, the Tax Foundation of Hawai'i calculated that a "statistical" family of four earning $82,000 a year would end up paying about $875 more in taxes, said Lowell Kalapa, president of the nonprofit organization.
That family already pays about $3,500 in excise taxes, which are charged on every product or service sold or resold in the state.
Raising the 4 percent tax to 5 percent would be a 25 percent increase and represent a cost of $225 per person per year in the family of "Arnie Aloha," the Tax Foundation said.
However, it isn't certain that the county will choose to implement the full 1 percent surcharge.
Raising $300 million a year for 10 years would more than cover the expected construction costs of the Kapolei-Iwilei rail line, even without what's widely expected to be at least a 50 percent contribution from the federal government. Last year, former Senate Transportation Committee Chairman Cal Kawamoto said raising the tax a half-percentage point would be enough to cover the local share of the project.
Reasons cited by residents who oppose the tax yesterday ranged from general principle to specific concerns about the proposed rail project.
Many, including those in East Honolulu, Windward and Central O'ahu, said they were unwilling to pay more for a project that would not benefit them directly:
"I'm against it because I'll never use it," said Ray Moriguchi of Wailupe.
"I don't think there should be a 25 percent increase across the board," said Mark Reynolds, who lives in downtown Honolulu. "Those who use the rail ought to pay for it."
"Stopping at Iwilei just won't cut it," said Michael Castilo of Kunia. "I'd be willing to pay, but only if it goes all the way to Ala Moana or Manoa."
Those who favored rail, however, saw a greater good to the community besieged by traffic problems, which Mayor Mufi Hannemann had called the No. 1 quality-of-life issue in Honolulu.
"We should have done it 10 years ago, and we would have had rail by now," said Ted Tahini. "What I'm spending for gas every day to drive from Wai'anae makes the tax increase look like chump change."
"Riding a rail would be more convenient, since rail does not compete with vehicular traffic. Commuters riding the rail can be assured of arriving at their destination on time," said Harrison Lee of Kane'ohe.
Some who favor rail transit said they nevertheless oppose using the excise tax to pay for it, and Kalapa agreed with them, saying the excise tax is regressive, "taking a larger percentage of a poorer family's budget than a high-income family's budget," and hitting business owners hard.
"I find it ironic that we're focusing on the 1 percent increase in the excise tax when there are many better ways to fund it," Kalapa said. "There are things like selling air and development rights around the stations that need to be considered."
Kalapa also saw irony in the state's supporting a tax increase at the same time it "is giving money out the back door" for tax breaks for things such as TV shows, ethanol production and the development of a resort in Ko Olina.
"I think your average taxpayer sees the problem with that," he said.
Many of those who contacted The Advertiser expressed doubts about the government's motives and questioned its ability to build and operate a rail system.
"I've lived in many places and have yet to see a metropolitan transit system support itself," said Myron Daniels of Kane'ohe. "They're always a drain on the public."
"This would be a total waste of money," said Nancy Nagamine. "It's unfair to surcharge things like food and medicine. The money would be better spent on improving the cramped bus system."
"If lawmakers worked for a company, they'd all be fired. We already live in tax hell, and they've done nothing to improve the roads. Absolutely, I do not think they should raise taxes for something they're not even sure is going to work," said Kim Hardwick.
Reach Mike Leidemann at 525-5460 or firstname.lastname@example.org.