Proposed bill would cut prices for diapers, food and medicine

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In a proposal that would dramatically reduce the costs of basic necessities for Hawaiian households, a state senator is pushing to exempt diapers, food and medicine from Hawaii’s general excise tax.

Sen. Glenn Wakai’s proposal would cut the cost of shopping at the cash register by 4% statewide and 4.5% on Oahu.

Wakai, who is chairman of the Senate Energy, Economic Development and Tourism Committee, added the provision to a bill presented to the committee on Friday. The committee voted unanimously in favor of the exemption. The original House bill provided a blanket exemption from excise tax only on diapers.

“If we really want to have an impact on people in difficulty,” he said in an interview, “let’s look at food and medicine.”

Wakai noted that the committee had received testimony calling for broader tax exemption from various organizations, including the Hawaii Chamber of Commerce, Hawaii Restaurant Association, Hawaii Food Industry Association, Hawaii retailers and the Hawaii Children’s Action Network. The organizations that appeared at the hearing stood by their written testimony.

“Food and medicine are the most important and basic necessities of life in this world, and some still struggle to provide these items to their families,” the Chamber of Commerce said in its written testimony. “We believe that including food and medicine in the general excise tax exemption would further assist families in need.”

Senator Glenn Wakai
Senator Glenn Wakai, Chairman of the Senate Committee on Energy, Economic Development and Tourism, calls for the elimination of the general state excise tax on food and drugs. Screenshot

The state GE tax rate is 4%, although counties may add additional fees. Oahu, for example, added an additional 0.5% to pay for the rail project.

Similar to a value-added tax, Hawaii’s general excise tax is essentially a sales tax on steroids, applying to all business transactions, including not only the sale of goods, but also services. , freelance gigs, rent payments – pretty much anything that changes hands. .

The state tax is lower, 0.5%, for activities such as wholesale, which mitigates the cumulative effect of the tax as products move through the supply chain from wholesalers to consumer. Yet the tax, which applies to almost everything, helps make Hawaii’s overall tax structure particularly burdensome for those at the bottom of the economic ladder.

Since the tax applies to basic necessities, including food, it means low-income people spend a disproportionate percentage of their income on taxes. In fact, a 2018 national study by the nonpartisan Institute on Taxation and Economic Policy reported that Hawaii ranked second in the nation in taxing the poor. It revealed that people at the lowest income level paid an effective tax rate of 15%.

In the meantime, the legislature has provided numerous exceptions for special interests. Business groups like chambers of commerce do not have to pay the GE tax. Neither do insurance companies, ship repair companies, and aircraft servicing and maintenance companies. An exemption, for solid waste disposal facilities that generate electricity built before 1988, seems suitable for Oahu’s H-Power.

Wakai noted that Governor David Ige had offered to provide $100 to each taxpayer as a means of returning a state tax surplus to residents. The senator argued that exempting food and drugs from the excise tax would help people more.

“There are a lot of exemptions for businesses but not a lot for the general public,” Wakai said.

Hawaii’s Changing Economy» is supported by a grant from the Hawaii Community Foundation as part of its CHANGE Framework project.

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