Cost of living is high, but not because of taxes
PAUL E. Smith, a director of the Tax Foundation of Hawaii, ignores the most notable feature of this state: its highest cost of living in the nation ("Taxpayers on a hook," Star-Bulletin, April 8). Hawaii's enormous living costs aren't taxes, but they do have an important connection to taxes.
Smith mentions that "in 2006 (Hawaii) had the fifth-highest percent (11.7) of state and local tax burden as a percentage of state income." Smith did not mention that Hawaii has the highest cost of living in the United States. While the city and the state must spend so much in this "highest cost of living" state, Hawaii is actually below the fifth-highest percent for its taxes. Spending less than the cost of living would seem to be impossible. Unfortunately, it has to save somewhere, and its biggest cut is for schools.
Hawaii schools are badly underfinanced. That is offset by the fact that we have the only fair, efficient and centralized school system in the country. Our schools are financed by income taxes, rather than by property taxes. All of us who live in Hawaii know about the high cost of living. Everything from a loaf of bread to a quart of milk costs more than on the mainland. That's true of refrigerators and ovens, shoes and towels. Also true of building materials, such as steel and lumber.
HIGH COSTS affect the prices of office buildings as well as homes, roads, harbors, classrooms and books. Everything that our state and city governments do has the same problem: high costs. And that is as inevitable as taxes. What's worse, as the Tax Foundation has finally realized, is our dependence on excise taxes, which are highly regressive -- that is, they are levied mostly on low- and middle-income groups.
The worst example is Mayor Mufi Hannemann's plan to pay for Honolulu's foolish rail transit plan with multibillion-dollar excise taxes. Foolish because it would be far cheaper and much more usable to expand the bus system and make it free. Unfair, as it will be paid for mostly by those with low incomes.
Hawaii's high cost of living is the result of a great number of conditions. As an island state, the cost of goods from the mainland by ship or plane is far higher than any other state. And we get a lot of things from the mainland.
Another feature of Hawaii, its marvelous climate., brings many people to visit or retire here. Their increasing demand raises the costs of hotels, housing and land.
THOSE COSTS are magnified by our reliance on leasehold ownership. Since landholders allow only limited time periods for renting their land, they are especially hazardous for small business owners. Leasehold is a major cause of small business failures. Homeowners on leasehold land have longer terms, but their contracts usually require loss or destruction of improvements that have been made on the property.
Here's why that should be changed. America's leasehold system was part of England's way of protecting its "land lords." In that country the aristocratic lords leased their land to peasants. Lord Baltimore established that system in what is now Maryland. That state abolished the leasehold system in 1894, allowing home and business owners to buy the land from landowners at market valuations.
Hawaii's high cost of living affects government spending as it does the spending of individuals and businesses. If the Tax Foundation could find some way to lower the Hawaii cost of living, that would be a great benefit for all.
Jerome G. Manis has a doctorate in sociology from Columbia University. He lives in Honolulu.