Mark Coleman First Sunday

Mark Coleman


Lowell Kalapa, president of the Tax Foundation of Hawaii, with the tools of his trade. The open roof of the state Capitol serves as a backdrop.

tax man

Lowell Kalapa is one of Hawaii's foremost experts on tax policy -- and he's not even a bureaucrat, politician or tax accountant. Kalapa is president of the Tax Foundation of Hawaii, a nonpartisan research group funded by nearly 200 businesses and individuals, which is celebrating its 50th anniversary this year.

Kalapa joined the foundation in 1973 after working for the House minority research office in the 1973 state Legislature. He also participated in the 1978 Constitutional Convention, which produced several key measures that govern state finances to this day.

In college he majored in journalism, but he minored in political science and economics, which helps him speak the language of the politicians who formulate Hawaii's tax policies.

As president of the Tax Foundation since 1979, Kalapa has been one of the state's loudest voices for fiscal responsibility, making his views known through newspaper articles, TV shows, classroom lectures and other public presentations, and, of course, through public testimony at legislative and County Council hearings.

He is a past president of the Aloha Society of Association Executives and is active in various national tax research organizations. He also has served as an officer or board member of more than two dozen community groups, including Hale Pauahi House Corp., Hale Kipa, Parents and Children Together, Historic Ewa, the Self-Help Housing Corporation of Hawaii, Friends of Foster Kids and the Queen Liliuokalani Children's Center advisory council.

At the Tax Foundation, Kalapa's lean staff consists of Tina Dusuacido, Kyle Yamada and Randy Hiu. His reading material lately, he said, is "a couple of studies (by David Brunori) on politics and real property taxation."

Lowell Kalapa, head of the Tax Foundation of Hawaii, testifies before a committee of the state Legislature.

School days

Mark Coleman: You grew up in Hawaii?

Lowell Kalapa: Born and raised here.

MC: Where did you graduate?

LK: Punahou. Also the Medill School of Journalism at Northwestern in Evanston, Ill., with both a bachelor's and a master's degree.

MC: How come you didn't become a journalist?

LK: Well, I am in a sense. I do a weekly column for the neighbor island newspapers and I'm also in the midst of doing an article for Honolulu Weekly.

MC: About what?

LK: They want a story on what the tax system of Hawaii is, in a way that people can understand.

MC: I'm intrigued that they would ask you.

LK: I know, (laughs) because they're quite liberal, yeah?

MC: If you have to use political labels, I would say that, yeah.

LK: But you know, the thing, Mark, is that the audience of the Tax Foundation is everybody. I don't care who it is. They can be on the right side, the left side or right in the middle. Our mission is to educate. Everybody needs to understand what the tax system is like here, how it affects them, what kind of money does it produce. That's our job. And I think that should be a journalist's job, too, to be very objective and explain what is happening, with all the opinions left to the editorial page, period.

A taxing profession

MC: After you got your master's in journalism, what was the first thing you did?

LK: Shopped around for a job on the mainland. But coming back to Hawaii was very important to me because at the time I thought there was a great need for accountability in state government. That was the early '70s.

MC: How did you become an expert on taxes?

LK: After I came back, I worked in the finance area for a session of the Legislature, and actually that was a very low-water mark in our legislative history. That was the year that they tried to pass a massive tax increase to address a similar shortfall that we're facing now.

MC: Were you working for a particular legislator?

LK: No. I was in the legislative research office. And because of my work there, I was picked up by my predecessor (Fred Bennion, at the Tax Foundation). We brought a lot of different ideas to the table during that particular session, some of which became law. The state spending limit on general fund expenditures had its genesis in that session. Plus, the whole idea of establishing a neutral body of wizards (the state Council on Revenues) to forecast state revenues came out of that session. Gov. (John) Burns was sick that session and wasn't really that active, so I think it's to the credit of Lt. Governor (George) Ariyoshi -- then Governor Ariyoshi -- that those things got passed. Some people criticize him for it, but Ariyoshi was really a fiscal tightwad. He left the state with a very handsome surplus when he left in 1986.

MC: Does Linda Lingle remind you at all of Governor Ariyoshi, so far?

LK: I think she's aspiring.

Taxes in paradise

MC: Do you think Governor Lingle came on strong enough for her first year?

LK: Actually, I think the word is grope. I think they're still groping their way around.

MC: From the point of view of the Tax Foundation, were there any victories or serious setbacks in the last legislative session?

LK: I think the disappointing thing about the administration is that it did support that $75 million tax credit for development at Ko Olina. The argument she made at our annual luncheon (July 16) was that she supported it because it's going to provide meaningful programs for the people of Leeward Oahu, but I think that's a very simplistic explanation. The tax system is not designed to hand out money with great efficiency. It's there as a collection device to raise the money for government programs, for which then moneys are appropriated. Another problem with that particular plan is, there is a lack of accountability.

MC: What do you think about tax credits in general?

LK: We don't believe that targeted business tax credits are necessarily efficient or effective. They turn out to be nothing more than subsidies or gravy for certain interests or for people who can fit square pegs into round holes.

MC: What do you think about so-called sin taxes -- taxes aimed at discouraging certain kinds of behavior?

LK: Similarly, taxes are not a social tool. The idea of raising alcohol and cigarette taxes as a means to discourage people from utilization ignores the fact that if people want something, they're going to get it, no matter what the prices. All it does is make it expensive for the very poor. It's a regressive taxation.

MC: What about the renter's tax credit?

LK: That's a little different. That's aimed at trying to reduce the burden for the lower-income people. The same thing with the low-income tax credits. Only people (earning) less than $20,000 get that tax credit, and that's to mitigate the 4 percent general excise tax on food and shelter. So it's only aimed at the poor, as a way to return taxes paid by people who cannot afford to pay those taxes.

Get rid of GET?

MC: What's your pet-peeve tax? Mine is the general excise tax.

LK: I would agree that the general excise tax is what I would call the beautiful beast.

MC: (Laughs) Oh, yeah?

LK: It's so efficient. It creates so much revenue -- about half of all general fund tax collections. But in creating so much revenue, we lose sight of exactly what's appropriate as far as the economy is concerned. And this is what was surprising: Governor Lingle didn't bring up in her speech (at the foundation's recent luncheon) what she had campaigned on, which was basically the exemption of food from the general excise tax. I think somebody finally explained it to her that food makes up a good percent of the tax base -- almost one-fourth the general excise tax collections. Get rid of that, how do you make it up? Another problem is, what do you define as food?

MC: The reason I don't like the general excise tax is because everyone treats it like a sales tax. When businesses so-called "visibly" pass on the tax to the consumer, that's just accounting BS. They still have to pay 4 percent on their gross, which now includes the 4 percent they tacked on.

LK: Right. It's 4 percent on the 4 percent they get, too.

GET alternatives?

MC: Is there an alternative to the GET locally?

LK: Well, Mark, it produces $1.7 billion a year -- almost half, if not more, of our total general fund tax collections.

MC: If that's the big cash cow, are there other taxes, perhaps, that could be gotten rid of to lighten the load on taxpayers?

LK: Well, maybe we can't afford it now, but I hope that this administration would consider looking at the net income tax, because our 81/4 percent top rate is still relatively high. We also have a very low threshold before we start taxing people, so we have an awful lot of people on our tax rolls who should be considered poor. The standard deduction is $1,500 or $2,000, depending on whether you're single or married. California doesn't start taxing people until $17,000. The joint standard deduction at the federal level is about $5,800 this year.

County tax policy

MC: How do you feel about the way the county (Honolulu) is set up in terms of its taxes?

LK: I think the counties are even worse from the standpoint that they're less than honest. We appeared before the Hono-lulu City Council recently and one of the things we have urged this Council to do year in and year out is to return to a single rate, so you have the same rate for residential and nonresidential properties.

But what's happened is that they've widened the gap. The rate for residential is $3.75 per thousand (dollars of assessed value). The rate this year for nonresidential properties is $10.63, and their argument at the City Council, or even the mayor, is that nonresidential properties -- business properties -- can pass the cost along, whereas homeowners have to pay it out of their back pocket.

And I go, that's nice, but to whom do you pass on this burden? Naturally, they say the visitors. Well, not all the customers who go into Safeway are visitors. Not all the customers who go into Macy's are visitors.

They're us. They're passing it on to us, but I'm not holding you accountable. I'm yelling at Mr. Safeway, Mr. Times and Mr. Foodland for charging me $4 for a bag of rice that was only $3 last year. So having a split rate like that, and hiding the cost of the property tax in the cost of goods and services, is certainly less than honest. It's hypocritical. They talk about how they want to create jobs and bring businesses to Hawaii, and then they turn around and set this higher tax rate on businesses.

MC: But if they equaled it out, homeowners would pay more?

LK: Homeowners would pay more, but then they would also say, God, I'm paying a lot for city government and, yeah, it would be nice to have those lights at the soccer field, but how much is that going to raise my property tax? When you see that you're paying for something directly, you have more of an interest in how that money is spent.

MC: What about user fees? Do you consider those taxes?

LK: They're in-kind taxes, in lieu of taxes, because our officials were too politically scared to raise taxes to pay for those services. It's nickel and dime ...

MC: Are those supposed to be a precursor to privatization?

LK: Not really, not the way they're doing it, because it's not putting those services out for bid. It's paying existing civil servants to continue doing the job that was formerly paid for out of property or income taxes.

The foundation's origins

MC: Who established the Tax Foundation of Hawaii?

LK: It was created by a group of businessmen who used to meet on a thing called the Tax Study Committee of the Chamber of Commerce, when they realized that the business community was losing voice in the Legislature. At the same time, the community here was making a concerted effort to have the territory designated a state, and one of the arguments against Hawaii becoming a state was that it would be nothing more than a handout, because supposedly it didn't have the economic infrastructure to support itself.

This was 1953. You're looking at a postwar economy; the visitor industry hadn't taken off, and sugar and pineapple were the big wheels here. So what they did in '53 was basically to say we need to prove to Congress that we can generate sufficient funds to pay our own bills and not become the welfare child of the federal government. So the foundation was put together as an objective research organization to help put together a tax system that would then prove to Congress and the rest of the nation that we could find ways to generate income for our state and support ourselves.

MC: And do we?

LK: At the time I think we did. These days, if, as with all other states, we were not put upon by the federal government to do a number of things which have come to be called unfunded federal mandates, we probably could still support ourselves. The fact is, we cannot provide that level of services required of us by the federal government with the resources we have. That's why we're in this financial situation here. A lot of it is overspending, but also a good part of it is the unfunded federal mandates, such as the NoChild Left Behind Act.

Another major reason for the financial crunch we're in today is that special funds obscure the big picture.

MC: How many special funds are there?

LK: Over 400, probably.

MC: These are independent of the general fund?

LK: Yes.

MC: How are they funded?

LK: The special fund for domestic-violence programs is one of my favorites. The funding for that comes out of the marriage license fee. When Sen. Donna Ikeda was chairwoman of Ways and Means, I guess the domestic-violence community convinced her there's some linkage between being married and beating up your partner.

MC: (Laughs) Who administers all these funds?

LK: They're based in various agencies.

MC: So, in addition to appropriations from the Legislature, various departments also get money from special funds?

LK: Yes. In fact, one department, the Department of Commerce and Consumer Affairs, is funded totally out of special funds, derived from user fees, licensing fees. But the problem is, again, the fees don't match up against the expenditures.

As I told (state Auditor) Marion Higa and the Legislature when they heard a bill on this issue, we have a constitutional spending ceiling that was imposed on all general fund expenditures, beginning in 1980. It says general fund expenditures cannot grow any faster than the state economy.

So by taking these activities in DCCA out and putting them in a special fund, they can grow and grow and grow, but they're not being measured by our constitutional spending limit.

MC: What about the so-called rainy day fund?

LK: Almost all of the money that's gone into the rainy day fund comes out of the master settlement agreement between the states and the tobacco companies. The ironic thing is that it's based on the consumption, so the more tobacco you consume, the more you get out of the master settlement. The less you consume, the less you get. So by being a healthy state, encouraging people to smoke less, we're going to get less money, and rightfully so. But if that's the case, then you're not going to have the kinds of funds that they're spending out of that fund.

Public participant

MC: So, you're a registered lobbyist?

LK: I'm not a lobbyist. A lot of people accuse us of lobbying, but we're very careful. Our by-laws specifically say that we're prohibited from lobbying, and as a 501(c) (a tax-deductible nonprofit under the federal tax code), we are. People think we're lobbyists because we get a lot of respect for the integrity of our work. So, you know, if legislators want to make a decision based on what we have to say, that's nice.

MC: What are you considered when you go down there (to the Legislature or the City Council) -- an expert witness?

LK: Expert witness, public participant. As I say, we participate in all the public hearings because they are public. Any person can participate and they should. But we don't corner people in bathrooms or make appointments and twist arms or take people out to dinner -- we can't afford it.

MC: What motivates you to do this job, besides the fact that you get paid to do it?

LK: I think I'm trying to help make life better for our people, you know? And that's being very sincere. I think that's what we do, even though some of the advocates for social services think we're a mean bunch of ogres. We're not.

MC: Are there any sacred cows when you go down to the Legislature?

LK: No, everything down there is open game, for everything that is paid for with my tax dollar and your tax dollar.

See the Columnists section for some past articles.

Mark Coleman's conversations with people who have had an impact on our community appear on the first Sunday of every month. If you have a comment or suggestion, please send it to


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