A recent special report by the Tax Foundation of Hawaii reveals how the cost of living has a direct impact on how many federal taxes are paid by taxpayers.
Since federal taxes are uniform across the nation, those who are living in states with a higher cost of living pay more taxes in proportion to those who live in lower cost of living areas. To achieve the same standard of living a person in high cost areas must earn more, and pay more in taxes, than those of other areas
The study was done by comparing a basket of goods and services, from rent to the cost of eggs, and determining what would be the cost of purchasing that same basket in different cities. The purchasing power of the nation’s median income was then determined and the amount of income required to purchase that same median amount compared. So, for example, the same standard of living that costs $73,105 in Milwaukee would have a comparable cost of $60,131 in Cookeville, Tennessee and $159,621 in New York City.
Hawaii’s cost of living is quite high in comparison to many other states. Honolulu has the fifth highest cost of living behind New York City, Jersey City, San Francisco and San Jose at $111,370. This higher income means that taxpayers pay more in Federal income taxes even though their standard of living is no different than those who pay less because they live in lower cost of living areas.
Thus the people of Hawaii start off at a disadvantage before taking into account the relatively high income and General Excise Taxes here. The local policies of over regulation of land use that drives up the price of housing is a major factor in the high cost of living here. Of course, there are other factors like the high import costs for food and other items because of the Jones act but government actions are being much of the reason of the high cost of living here.
This issue is also pertinent to the education problems of this state. Although the nominal dollar amount spent per student in this state is high compared to other states, the high cost of living means those dollars buy less, are less effective and contribute to the well known education shortcomings experienced in this state. So just throwing more money at the problem will not improve education, but figuring out the best use of those dollars as it applies to the local school level. This isn’t well served by a large, centrally planned system such as now exists in Hawaii.
The real solution is for the Legislature of this state focusing upon ways that will relieve the tax burden on the people, reduce costs of living by promoting increased competition and free enterprise and reducing regulations on business that drives up costs. The more the cost of living can be driven down the fewer proportional taxes the people of Hawaii will pay and the wealthier we will all be as a people.
”’Don Newman, senior policy analyst for the Grassroot Institute of Hawaii, Hawaii’s first and only free market public policy institute focused on individual freedom and liberty, can be reached at:”’ mailto:firstname.lastname@example.org ”’See the GRIH Web site at:”’ http://www.grassrootinstitute.org/
”’This editorial is intended to provoke thought, discussion and an examination of issues. It does not reflect official policy of the Grassroot Institute of Hawaii.”’
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