Moving Hawaii's Tax Burden Hides Costs

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Earlier this month, the mayors of the three neighbor island counties advised the Honolulu mayor that the way they provided homeowner property tax relief was to create a special category for homeowners.

This separate category allows county officials to set a property tax rate that is substantially lower than the rates for nonresidential property and residential property that is not owner occupied. While it may cool the political heat for county officials generated by the vast majority of homeowners, it is a disingenuous gesture on the part of public officials.


As Honolulu council members noted, since the rate on nonowner-occupied residential property will be higher, that strategy ends up penalizing those that are least capable of owning their own home, the renter. Further, because the foregone revenue created by the lower property tax rate on owner-occupied homes has to be made up, the rates on all other categories will have to be that much higher.

As a result, not only will renters pay more as landlords will have to pass on the cost of the higher property tax bill, but consumers will also pay more for the goods and services they purchase from businesses.

The result is that homeowners end up paying the property tax burden anyway because it is hidden in the shelf price of goods ad service sold by businesses. And with goods and services that much more expensive, the state general excise tax, which is imposed on those purchases also goes up, exacerbating the tax burden even more.
So is there a way to provide tax relief? In this case, as in every situation with government, the property tax burden is not one of a revenue problem, but one of spending.

In hiding the higher tax burden by moving it to nonresidential and nonowner-occupied residential property, elected officials are not being honest about the cost of providing county services. The end result is that homeowners believe they can ask for more county services while blaming businesses for gouging consumers with higher and higher prices.

Therefore, if there is to be any kind of relief from the burden of real property taxes, taxpayers need to hold their
elected officials accountable for the level of spending that demands higher property taxes from all taxpayers. As one
astute observer of the property tax burden in Hawaii noted, “just lower the rates.”

As the current mayor of Honolulu campaigned, “can we afford it and can we maintain it?”

Taxpayers likewise need to ask whether or not they can afford another county service or program since that new service or program will merely add another demand on property taxes for that county. As the saying goes, Athere is no such thing as a free lunch.@

Elected officials may think they are doing their home-owning constituents a favor by creating a separate classification for homeowners, but as noted above, all taxpayers, including homeowners, end up paying as the property tax burden is moved to other classifications.

If homeowners truly had to pay for the cost of running county government by paying the same rate as nonresidential, nonowner occupied properties, they would have a vastly different opinion of their county elected officials.

Gimmicks like home exemptions, separate classifications, and dedications, merely hide the cost of county government and are less than honest ways to provide tax relief. As we all have learned in the case of the home exemption, the static amount does not address rising valuations. Neither do caps or changes in the methodology of valuing real property address the real problem which is overspending at the county level.

Like families and their budgets, county officials need to learn to live within their means. In this case, the “means” is how much the property taxpayers are willing to pay and not whether they can deceive homeowners into believing they can get a free ride.

It is imperative that taxpayers understand the direct relationship between how much is being spent on county services and how much they are being asked to pay for those services. Only then will elected officials be held accountable for the largess of spending they seem to enjoy.

Only then will taxpayers understand that elected officials need to set priorities for county services and not practice the age-old Roman ploy of Abread and circus@ where the citizens of Rome were placated with food and amusement while their leaders wined and dined at their expense.

Obviously this is not a new phenomenon, but it is one that taxpayers must remain ever vigilant in preventing. Unless taxpayers are aware of these shenanigans, elected officials will continue to get away with their bad spending habits.

”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’

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