Adjust spending, not just taxation

The price of paradise keeps rising, and so does the cost of governing it.

The state Tax Review Commission hired PFM Group Consulting, ostensibly to find ways to rebalance the state tax system. But even an optimal result represents only half the job: A real balancing act would require an adjustment in spending, not just tapping new funding sources.

The consultants have produced a draft of a plan that proposes several new revenue streams. Some of them would level the playing field and bring in a healthy injection of cash for state coffers. That would be a smart policy move, a step toward greater fairness as well as a financial cache for public purposes.

But some would represent a mere money grab, initiatives not complemented by proposals to reduce state spending. Lawmakers should proceed with caution. Given that 2018 is an election year, politicians seeking to keep their jobs are certain to be circumspect about new taxes.

And when these ideas surface again before decisionmakers at the state Capitol, the taxpayers themselves must make their voices heard, to drive the point home.

HERE ARE some of the ideas the commission will discuss Oct. 3:

>> Taxing sugary beverages at the rate of 1.5 cents per ounce, raising an estimated $48 million a year and, theoretically, enabling weight loss and better health.

But the surcharge by itself would not drive a change in eating habits and would merely pad the grocery bill. It also ignores the ubiquitous sources of sugar in many other “junk” foods. If it is to achieve anything comparable to the success of the cigarette tax in deterring smoking, it would have to be a pretty steep fee, and that would be a tough sell.

>> Voters could be more easily persuaded that an increased cigarette tax, as well as a new one on electronic vapor cigarettes, are more defensible from a health-advocacy standpoint, as well as generating $20.3 million and $4.5 million, respectively.

>> The issue of a medical marijuana tax is a sticky one. Conventional drugs are not assessed a special tax, but medical cannabis is in a distinct category, given that recommended dosage is not well understood and that it is not, strictly speaking, prescribed by a doctor.

Due to its federal legal classification as a Schedule 1 drug, the state needed to develop an expensive infrastructure for the testing and sale of medical cannabis, including the establishment of a cashless payment system. The licensed dispensaries pay fees to help pay for this, but the buyers should share in the costs as well. The proposed yield: about $13.2 million.

>> The top-dollar idea — with a projected annual yield of $365 million — is the proposal for a new carbon tax on products, an assessment based on how much carbon combustion of the product emits.

Surely this proposal arose in part because U.S. abandoned the Paris Accords on climate change. Hawaii, which squarely faces the threat of sea-level rise, should take steps to counter global warming, and this is seen as effective way to incentivize a reduction carbon footprint.

That said, the tax would add to the cost of products and would be a politically heavy lift. While it would be wise to begin the discussion, this requires further study.

THEN THERE ARE the proposals seeking uncollected revenue that, by rights, is owed to the state anyway. A hotel-room tax on alternative vacation rentals such as Airbnb units in private homes could add $135.7 million to the general fund.

It is not fair that the unconventional accommodations put a sizable burden on communities where they are located while the state gets none of the revenue hoteliers contribute. And as the tax is paid by tourists, this cash infusion would not burden local taxpayers.

But the rush to collect from this growing sector of the visitor industry does not negate the need for regulation. The state promised to write rules enabling better tracking of the vacation-rental sector, and should produce them before further taxation is allowed.

Further, the counties cannot shirk their regulatory duties. Honolulu especially must find a way to set standards the rentals would have to meet, discouraging those that operate as wholly unsupervised mini-motels.

Other tax-fairness strategies would include extending the GET to online purchases and, yes, assessing a tax on state and federal pension income above $25,000. The former is fairly uncontroversial; the latter, pressed by former Gov. Neil Abercrombie, hastened the end of his political career.

State retirees should help to pay for the increasing costs of the state retirement system, but this idea poses an insurmountable hurdle in an election year.

The commission needs to whittle this taxation wish list to more reasonable dimensions before the Legislature convenes.

And, as some already are pointing out, reducing spending is the other side of the coin. That, as well as beating the bushes for more money, is also the job of elected leaders, come January.