Taxation in Hawaii

In “Hawaii General Excise Tax (GET): Should the Base be Changed?”, William Fox analyses whether Hawaii GET should be altered by granting additional exemptions and by eliminating some existing exemptions.

This matter should be carefully considered because GET generates the largest amount of revenue at a low tax rate in Hawaii. In addition, Hawaii has the broadest sales tax base in the US.

Any appropriate exemption should be evaluated in the light of economic, revenue, and distributional effects. Business to business transactions as well as business to household transactions can both benefit from tax exemptions. While assessing exemptions it is also crucial to understand the difference between business and individual behavior.

Regardless of exemptions, every good tax system is comprised of low compliance and administrative costs. Compliance refers to the costs on the private sector to fill out tax returns, comply with tax structures, and remit tax payments. Administrative costs are about the government costs on collecting taxes, hiring staff, designing tax systems, preparation of documents, and identification of tax payers.

Independently of tax exemptions, another important aspect to be considered are the revenue principles of sufficiency, adequacy, and stability. Sufficiency means the generation of required revenues during budget periods. Adequacy is about whether tax systems provide enough revenues to continue providing services over the long term. And stability refers to taxpayer’s cyclical performance.