Most of us have heard or used the term 鈥減aradise tax鈥 when discussing the high cost of living here in Hawaii. It can refer to added shipping costs, high energy prices, expensive fuel and other things.
But what some may not know is that we also pay an actual tax that the majority of our mainland counterparts don鈥檛 pay; Hawaii is one of only seven states that fully taxes grocery purchases.
Though we don鈥檛 have a traditional sales tax, the general excise tax is levied on sellers and then passed on to consumers at the point of sale.
In 37 states and Washington, D.C., citizens pay no state taxes on groceries, although in some of those states restaurant-type meals and things like gum and alcohol are taxed, according to . In seven more states food is taxed at a rate lower than the state sales tax; in most of these places it is under 3 percent. (In Tennessee the reduced tax is 5 percent).
The main reason that the majority of states avoid taxing food is because these taxes disproportionately affect lower income families who, by necessity, spend a higher percentage of their income on food.
Purchases using SNAP or other government assistance programs are not taxed, and the for those earning less than $50,000 a year. (The specifics of the rebate will change next year, pending the governor signing Senate Bill 555.) Currently taxpayers can apply for the rebate when filling a return. It ranges from $25 for those in the highest eligible income bracket, to $85 a year for those earning $5,000 or less.
Given the overall high cost of living here in Hawaii, there is a strong argument that we have even more reason than other states to exempt groceries from the general excise tax.
This does allow some people to recuperate money they spent on grocery taxes, but it still requires those who can least afford it to pay the tax up front and then try and get it back later.
Grocery taxes are also, somewhat surprisingly, a decreasing source of tax revenue for states. In 1950 the average American household spent 20.6 percent of their disposable income on food, according to . In 1990 it was just 11.1 percent, and by 2010 it fell to 9.4 percent.
This decline is likely to level out, if it hasn鈥檛 already, since we probably won鈥檛 get to a point where we鈥檙e spending zero percent of our income on food. But the fact remains that the amount of money the state has received from grocery taxes has been going down in relative terms.
Given the overall high cost of living here in Hawaii, there is a strong argument that we have even more reason than other states to exempt groceries from the general excise tax.
A to exempt food and medical services. It gained support from a range of groups聽鈥 including the , the , the , and the 鈥 but was deferred by the first committee to hear it.
A similar and was never scheduled for a hearing. There has been little public engagement on the issue and the support from industry groups has not been enough to overcome concerns among legislators over the amount of money the state government would lose if groceries were exempted.
It is extremely difficult to give an accurate estimate of exactly how much tax revenue the state would lose but it could easily be in the tens of millions of dollars, and possibly more.
The loss of tax revenue caused by exempting groceries could be mitigated somewhat by the fact that at least part of the money people save on groceries would likely be spent on other types of taxable purchases, which would put it back into the economy in other ways.
It would also of course help to create a state government that needs less funding by increasing efficiency, which is already one of Gov. David Ige鈥檚 main priorities.
We could further offset the loss by closing loopholes in our tax code, such as the GET exemption that exists for purchases from retailers who don鈥檛 have a physical location in the state. At present if I buy a rice cooker online from a retailer who doesn鈥檛 have a store or warehouse in Hawaii I don鈥檛 pay any GET on it, but if I buy actual rice from the local grocery store across the street I do pay GET.
We鈥檇 also probably have to make a number of other adjustments if food were exempted and we may be able find solutions by looking in detail at how the states that don鈥檛 tax groceries are able to fund important programs.
There is of course no clear 鈥渞ight鈥 answer to what exactly should be taxed and how much, and each state is different.
With the cost of living in Hawaii already high, and looking like it could get even higher, it makes sense to figure out exactly what contributes to the problem, as Civil Beat has been doing.
Paying a 4 percent 鈥減aradise tax鈥 on groceries may not be the main driving factor behind our high cost of living, but it certainly isn鈥檛 helping. And it is one factor that we do have some control over.
As residents of Hawaii, and voters, we absolutely have a say in how our state government is funded. Bills to exempt groceries from the GET are likely to be introduced again in 2016 and when they are we can reach out to legislators and let them know whether taxes on groceries make sense for our state. We can also tell them that it鈥檚 time for a change.
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