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4 percent is NOT
a low tax rate

You sometimes hear people say that the Hawaii general excise tax is "only" 4 percent, while many mainland states have a 6 percent, or 7 percent or even 8 percent sales tax. This comparison is misleading, however, because it's an apples-to-oranges comparison -- our Hawaii general excise tax is very different from the typical sales tax found on the mainland.

In most states, the sales tax covers only the final retail sale of goods; it does not apply at the wholesale level, nor does it apply to services, rents, interest, or other forms of income. In contrast, the Hawaii general excise tax applies, in the words of the Hawaii Supreme Court, to "virtually every economic activity imaginable." Unlike the typical mainland sales tax, our GE tax does apply at the wholesale level, does apply to services and does apply to rents, interest, royalties and other forms of income.

In fact, if we compare sales and excise taxes across all 50 states, on a per-capita basis Hawaii is No. 2 -- second highest of all 50 states. The only state ahead of us is Washington, which has no state income tax. Note that we are second-highest now, before any increase in our tax rate.

Our 4 percent rate may appear low, but a big chunk of the tax burden is hidden in the prices of goods and services. For example, suppose you buy a loaf of bread for $2. The store adds 4 percent tax and charges you $2.08, so the "visible" tax is eight cents. In reality, however, the state is collecting a lot more than that. The $2 price covers the store's costs, which include the GE tax paid to the bakery when the store bought the bread at wholesale, the GE tax paid to the landlord when the store paid its rent, the GE tax paid when the store bought its shelves and display cases, and the GE tax paid by the store to a whole range of service providers, ranging from repair and building maintenance to accounting services. When you add it all up, the state is eventually going to end up with a lot more than eight cents out of the $2.08 you paid.

In terms of the total amount of tax revenue collected, our GE tax is equivalent to approximately a 13 percent or 14 percent sales tax -- if we actually had a sales tax that worked like the typical mainland sales tax, the rate would have to be 13 percent to 14 percent in order to generate the same tax revenue that our GE tax produces now. If you compare apples to apples -- instead of apples to oranges -- then we effectively already have a 13 percent or 14 percent sales tax.

The fact is that Hawaii is a high-tax state. There are different ways to look at the statistics: dollars per capita, percentage of total personal income, percentage of gross state product, etc., but no matter which approach you use, our state taxes put us in the top three or four among all 50 states.

Some people may say that we have low county taxes, and that focusing only on state-level taxes is unfair. Even if you look at state and county taxes combined, however, we are still near the top. For example, measured in dollars per capita, we are No. 1 -- highest of all 50 states -- in total state taxes. (This is all state-level taxes combined: income tax, excise tax, conveyance tax, etc.) If you look at state and county taxes combined, we drop to fourth place -- still fourth highest of all 50 states.

Anybody who says Hawaii taxes are low just hasn't looked at the facts.

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