Hawai‘i has a new resource to help make better budget and tax policy decisions, coming online at a critical time in light of recent and upcoming events in Washington. According to recent federal government reports, 2018 federal tax reforms have resulted in a 33% drop in receipts from corporate taxes and an annual budget deficit that is growing faster than expected, anticipated to exceed $1 trillion by 2019. Reduced revenues increase the risk of program cuts when the current federal spending bill expires at the end of September.
Uncertainty regarding federal funding, which accounts for 17 percent of Hawai‘i’s $17 billion executive budget, makes it more important than ever that Hawai‘i has the ability to make data-driven decisions on state tax and budget policy to ensure the choices we make are efficient, effective, and equitable. To that end, the new Hawai‘i Budget and Policy Center (HBPC) has released its first publication—a Budget Primer that serves as an entry-level course covering the components of the state budget, how it is created, and the priorities and choices it reflects.
Hawai‘i’s budget is a powerful foundation of daily life and a demonstration of our state’s priorities and values. It sets out where we get our money and what and who we spend it on. It dictates the investments we make in our schools, our environment, our health, and our economy. It is the blueprint for Hawai‘i’s current and future prosperity and is an economic engine in itself, making up 20 percent of the state’s gross domestic product.
While federal budget decisions may be made that are outside our control and preferences, we can craft state and county budgets that align with Hawai‘i’s values and aloha spirit. The HBPC Budget Primer serves as a starting point for a new effort to pull together data and information relating to the budget so policy makers, community leaders, and interested citizens can make better informed budget and policy decisions.
Takeaways from the Budget Primer include the following:
- Hawai‘i is last in the nation in terms of percentage of our state budget that comes from federal sources, suggesting that Hawai‘i may have an opportunity to attract more federal dollars to support state programs.
- State government spending accounts for 20% of the gross state product (GSP). In combination with county budgets, 26% of the GSP comes from Hawai‘i-based government.
- Hawai‘i residents with the lowest incomes pay almost twice as much of their earnings to state taxes than people with the highest incomes.
- The state’s biggest source of tax revenue is the general excise tax. The GET appears to be deceptively modest (4 to 4.5%) if seen as a sales tax but, because it’s an excise tax applied to virtually every transaction, the multiplied effect would equal a sales tax of 10 to 11%.
- Hawai‘i’s property taxes, which are collected at the county level only, are at the lowest rates in the country.
An electronic copy of the Budget Primer and more information about HBPC are available at www.HiBudget.org.