Hawaii Loses Ground on Business Tax Climate

In a nationwide survey of state tax structures, Hawaii continues its stagnant economic performance, ranking 31st out of 50 states in the 2016 State Business Tax Climate Index. The study, released today by the Tax Foundation, compares five different metrics in a state’s tax system to calculate the state rankings–Corporate Taxes, Individual Income Taxes, Sales Tax, Unemployment Insurance Tax, and Property Tax.
tax climate index
While other states have enacted reforms that have improved their rankings and encouraged investment in their state, Hawaii has done little to improve its tax climate. This year’s ranking represents a minor slide, down from a ranking of 30 in the 2015 Index. The worst performance came in the category of Individual Income Tax (#37), while the best was in Corporate Tax (#10). The dichotomy demonstrates that economic stimulus requires a broader approach than focusing solely on corporate taxes and tax credits.

Individual Income Tax is actually one of the best indicators for how business-friendly a state truly is. A number of businesses, including sole proprietorships, S corporations, and partnerships, report their business income via the individual income tax code. It can also affect the labor pool as high income taxes chase potential workers to friendlier states. In order to encourage small business and entrepreneurship, taxes like the individual income tax and the general excise tax need to be reexamined.

“This ranking simply demonstrates that the leadership in our state is running out of ideas when it comes to encouraging investment and growth,” stated Keli’i Akina, Ph.D., President of the Grasssroot Institute. “The current scheme does nothing to help small businesses, but only contributes to the high cost of living and the state’s brain drain. We need reforms that will make Hawaii more affordable–to live, to do business in, and to work in. That starts with real, effective tax reform that will help keep people and jobs in the state.”

The 2016 State Business Tax Climate Index can be found at http://taxfoundation.org/

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