Much has been said about the Nov. 6 ballot question of modifying the state Constitution to allow a tax surcharge on investment real property to supplement funding for education.
While no one can dispute the need for a better education system in Hawaii, including higher salaries for teachers, the method sought in this ballot question is a bad approach to the issue.
If passed, this constitutional amendment (ConAm) would give the Legislature unfettered power to tax any and all investment property in this state. This would adversely affect all tenants (teachers included) through increased rents to cover the landlords’ new cost. Depending on the rate, it could easily double a property owner’s real property tax.
Unless a tenant is a business, rent is not deductible and must be paid from after-tax income. For example, if the rate is set at $5 per $1,000 assessed property value and the rented property is worth $1 million (not too hard to imagine, since the single-family home median value is now $810,000), tenants would have to pay $5,000 more in annual rent than now. Assuming a 20 percent total income tax burden (federal and state), a tenant would need approximately $6,200 more annual gross income to cover the rent increase.
The ConAm also would have an adverse effect on those landlords who cannot raise rents enough to cover the surcharge. Since property tax is levied on the market value of a property, not its income, and given Hawaii’s high property values, it would be very easy for the surcharge to exceed the ability of a landlord to increase rent. This may not be a problem for the very wealthy; it will be an acute problem for the many kamaaina who have inherited property from their kupuna or makua but are not otherwise awash in cash.
Since the general fund is made up of tax revenue from all residents and visitors, it is the best and only fair vehicle to pay for education. A small increase in tax rates spread over all sources of funds in the general fund could provide sufficient monies to improve the teachers’ lot considerably. Targeting a small segment of the overall population with a large tax increase may or may not do that and will significantly increase owners’ and, therefore, tenants’ expenses.
Another thing to consider is that the ConAm does not in any way specify that overall funding for education will be increased by this tax surcharge. The Legislature could easily decrease the level of education monies from the general fund, claiming those funds will now be used for other programs (unfunded pension liabilities?).
Because of these uncertainties and pitfalls, the best way to vote on this ballot question is no.
Geoffrey Avery is a retired military and commercial pilot and a fourth-generation, part-Hawaiian kamaaina.
Correction: The print version of this commentary contained a reference to the general excise tax. The reference has been changed to refer to the general fund.