20 years adds up
By Russ Lynch
Arnie and Annette Aloha are being nudged aside this year.
The Tax Foundation of Hawaii, which has monitored the fictional Aloha family's income and spending for more than 30 years to illustrate the tax burden faced by Hawaii residents, is moving forward a generation to study their son "Alfie," his wife "Anita" and their two children, "Adam" and "Ashley."
Comparing today's taxes with those of their parents, Alfie and Anita got some shocks but also some surprises about how little some parts of their tax payout have increased, according to figures gathered for the foundation's upcoming brochure, "Tax Burden of the Aloha Family."
The good news is that while inflation caused overall prices to grow 89 percent through the two decades, the Aloha family's tax burden grew only 45 percent. One reason is federal income tax rates, and the income brackets to which the different rates apply, are pegged to movements in the Consumer Price Index.
There were some other tax breaks, too. Alcohol and tobacco taxes are no longer charged as a percentage of the price but instead are based on the quantity purchased. The price of cigarettes soared but the tax of 5 cents a cigarette didn't change with it.
Still, there were some big tax hits over the years and the Tax Foundation's pet hate, the pyramiding nature of Hawaii's general excise tax, is still the main villain, according to Lowell L. Kalapa, foundation president.
"The leader is the general excise tax. You would think it would mirror prices" but it doesn't, Kalapa said.
From Arnie's days until his son Alfie's 20 years later, the Honolulu Consumer Price Index rose 89 percent. But the general excise tax paid by Alfie's family is 337 percent greater than that paid by Arnie's family two decades ago.
The Tax Foundation says the problem is the way the 4 percent excise tax on retail sales is tacked onto the half-percent wholesale tax on the same item. In some cases that can happen several times as a product moves through the distribution chain from the original manufacturer to the end consumer.
The Legislature faced the issue and in 1999 launched a seven-year deconstruction of one major pyramid, the way services are first taxed at 4 percent at the wholesale level and again on the retail level. The Legislature set out a series of cuts that will bring the wholesale service tax down to 0.5 percent by 2006.
Kalapa gives an example of how the problem arises: A Waikiki hotel decides to put on a luau and hires a catering company to do the food preparation. What the caterer gets paid for is a service, subject to a 4 percent tax. If the hotel also asks the caterer to provide entertainment, that, too would be subject to a 4 percent tax. The caterer takes that total price and bills the hotel, adding 4 percent tax on everything.
The hotel, in turn, builds all those costs into its cost structure, sells tickets to the luau and adds another 4 percent tax onto the retail price.
Though the wholesale tax is only half a percent, it adds to the cost of doing business in Hawaii. That, in turn, means higher prices, which means more tax at the retail level. It all adds to a significant tax burden for Hawaii's families, the foundation says, and a burden that is increasing.
For instance, in 1981, tuition for a year at the University of Hawaii cost $225. The family of 2001 is looking at tuition of $1,578 per student, an increase of more than 600 percent.
The family's medical plan cost $444 a month in Arnie's day, but $1,745 in son Alfie's, a rise of 293 percent.
Cabbage in 1981 was 19 cents a pound. Now it's 69 cents, up 263 percent.
"Surprisingly, with all the attention that oil prices have received over the past few years, gasoline registered only a 17 percent increase in price, rising from $1.58 a gallon in 1981 to $1.85 a gallon just last week," the foundation said.
Certainly the amount of tax that people have to pay has risen over the years, but haven't wages risen too? Yes, they have. State Labor Department figures show increases in the average weekly wage over the past 20 years, such as 129 percent for hotel workers and bank employees, 124 percent in construction and 119 percent for workers in communications and utilities.
But there were much smaller increases too, only 50 percent through two decades in retailing and only 78 percent over the same period in the wholesale trade.
Anyway, the average wage is not what counts, according to the Tax Foundation. It bases its studies on the total tax burden faced by a family of four, which includes a whole range of income within the one family.
Using a variety of federal and state income statistics, the organization came up with what it feels is as close as it could get to an estimate of the typical family of four and its spending and earning pattern.
The bottom line, the foundation says, is that taxes are costing the Aloha family more than one-third of its total income.
Kalapa won't release much information about the family's situation. For that, you have to buy the brochure, "Tax Burden of the Aloha Family," which will be available soon, Kalapa said. The foundation is promoting the brochure as a teaching or discussion tool, to go into employee pay envelopes or for classrooms, and has set a pre-publication price of 10 cents a copy for bulk orders of at least 500 brochures.
For more information contact Tax Foundation of Hawaii at 536-4587.