Candidates for political office in Hawaii have suddenly started talking about a policy option that has been kicking around for years: Exempt food and medicine from the state general excise tax (GET).
The reasoning is that such an exemption would offset the rising cost of groceries and other necessities at a time of accelerating inflation, when Hawaii residents desperately need help making ends meet.
And that reasoning is correct.
According to the U.S. Bureau of Labor Statistics, Hawaii households spend a much higher percentage — 16.5% — of their budget on food than the U.S. average of 12.5%. Given that food prices in Honolulu alone have gone up 8.7% over the past year, a tax exemption for groceries would go a long way toward alleviating food costs, especially since with the county surcharges, Hawaii’s general excise tax can be as high as 4.712%.
To put it another way: Would it help your family to take $1 off your grocery bill every time you spent about $21? Anyone who has ever clipped a coupon or used a store discount card knows the answer to that question.
The state director of taxation recently argued there is no need to exempt food or medicine from the excise tax because drugs and prosthetics are already exempt, as are food stamp payments (“GET not as regressive as some believe,” Island Voices, Star-Advertiser, July 24). But the purpose of this exemption isn’t to help a select group of people. The idea is to give everyone some relief from Hawaii’s high cost of living — especially working families who don’t qualify for government assistance must watch every penny.
Moreover, the benefits of the exemption wouldn’t stop there. By expanding the medicine exemption to include medical services, Hawaii policymakers would not only help lower health care costs, they also could help alleviate Hawaii’s doctor shortage.
Currently, the GET is not applied to hospitals, but it does apply to private practice physicians. Because federal rules do not allow doctors to pass on the tax to Medicare patients, physicians find it difficult to run a successful practice in Hawaii.
Combined with other problems doctors face, including the high cost of living and onerous regulations, the tax on medical services is among the reasons that many doctors have left Hawaii to practice elsewhere — and that’s according to the doctors themselves.
A 2020 study commissioned by the Grassroot Institute of Hawaii showed that GET exemption for medical services would result in savings of about $200 million a year. Furthermore, if the exemption persuaded just 820 new physicians to start a practice in Hawaii, that would result in 4,000 new full-time health care jobs in the state, as well as 4,000 new supplier and induced jobs, resulting in $1.4 billion in new economic activity and $67.3 million in taxes.
That tax bump would help offset lost revenue from the excise tax, without putting additional burdens on the industry.
In other words, the proposed GET tax exemptions would not just help lower the cost of living. They would have a ripple effect that creates jobs and spurs enterprise — as long as policymakers could resist the urge to “make up the difference” with more taxes elsewhere.
Hawaii already has a long list of excise tax exemptions intended to help different industries or lower costs. Isn’t it time that personal necessities such as food and medical care be exempted as well?
Keli‘i Akina is president and CEO the Grassroot Institute of Hawaii.
