It has been almost two months since I wrote an op-ed piece titled “Grief for a World Killed by covid” (I still refuse to honor the germ by capitalizing it). Hawai‘i is still shut down to visitors, and the anticipated August opening has been moved back to September due to the spikes on the mainland and limited testing abilities available here. Our numbers in Hawai‘i, though rising, are much better at about one positive test per thousand population, versus 10 times that rate for the nation as a whole. Our government officials are struggling with the decision to re-open our tourism dependent economy at the risk of increasing our infection rate. Our isolation has become our best weapon against infection, but our worst enemy at stimulating our economy.
On a positive note, the islands are regaining much of their beauty. The roads are pleasingly free of thousands of visitors. Eyes seem to be smiling even if we cannot see smiles under the face masks. But we are heading for a financial cliff. Every day, more businesses are forced to shut down when the hopes for recovery get overshadowed by realities of their overhead, dwindling savings and diminishing governmental assistance. Their impacted employees are also facing ends to government stimulus plans, unemployment and stress of unpaid rent and mortgages. We need a government that gives them a tangible reason to hang on until our borders open up to tourists again. A government with a plan, not a hope.
I hope that Hawai‘i does not return to having 10 million visitors here per year. That number was and is unsustainable and has little opportunity for a quality of life here for our residents. Yet, we have built our economy on tourism, and it can be the economic powerhouse it once was, even if we have less tourists.
The key may be to legislate reforms that would aim at maintaining revenue from tourists but actually reducing their number. Economically, that means charging more money for visiting Hawaii. Not just a little more. I propose an increase in the Hawaii General Excise Tax for visitors to 40%, instead of the uniform rate for residents and visitors of 4.5%. I also propose a reduction in the Hawai‘i resident rate to 2%. Based upon our existing system of taxing the tax, visitors effective tax rate on food, lodging, car rentals, and visitor attractions would be about 65% and the tax for residents would be less than half of the current rate. Provisions would have to made for mitigating the progressive nature of our excise tax in the supply chain to the ultimate taxpayer to avoid government swallowing the vast majority of all money flow in the islands. The idea is to make Hawai‘i more expensive to visit, and less expensive to live in. If tourists want to visit a relatively pristine, uncrowded, Aloha based place, they will have to pay more, a lot more than they used to.
If such a provision is enacted, here are my predictions of what will happen:
1. Numbers of tourists will go down significantly, maybe by half.
2. Revenue per tourist will about triple. Net visitor spending will increase.
3. Some hotels will not be able to survive the higher rates necessary to pay the tax. State revenue will be increased, and available to purchase hotels that shutter.
4. State revenue will be increased, and available to purchase hotels that shutter.
5. Hotels purchased can be used for our homeless, as long as there are comprehensive services to support the mentally ill, the drug dependent, and those with insufficient resources and income. I would venture that almost no one on the streets has zero income. They need assistance in allocating their resources to stay off the streets. Hotel rooms may be the step necessary to their permanent independence.
6. Other hotels purchased by our government may be available for low-cost rental or for resale to our residents hoping to establish a foothold in their state. The cost of a hotel (prior to the pandemic) seemed to hover around $200,000 per room. Many of the hotel rooms are larger than the smallest Kakaako units selling for $700,000+. State provided 100% financing at current mortgage rates would allow a purchase at $843/month, which is well below the “affordable” solutions available today.
This two-tiered tax system will have its detractions. Visitors will not like having to pay $100 for a meal at a restaurant that a Hawaii resident can get for $36. But, that’s the price of paradise. There should be rules for who gets the “kama‘aina” rate of tax. Kanaka Maoli (they are true residents, forever) those born in Hawai‘i, or those that have lived full time in the islands for at least 5 years would be entitled to the lower tax. One could also lose the exemption by “gaming the system” (profiting by paying the lower tax rate for a fee), committing a felony, by operating an illegal vacation home, pr by being a public official convicted of corruption. During this era of emergency proclamations, refusing to wear a mask may provide unprecedented incentive to comply. It is a privilege to live in Hawai‘i. Let’s think outside of the box to allow us to not only live here, but to thrive here in our new, uncharted world.
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Nolan Ahn is a resident of Lihu‘e.
