The author traces administrative burdens from the colonial era and Civil War, arguing that red tape historically has been a tool of discrimination and exclusion.

Our tax system, of course, contributes to this mess.  Buried within it are several common traps.  For example, what happens when you change your address?  You notify the USPS to forward your mail from your old address to your new one.  The data is picked up by tons of companies who are eager and willing to sell you goods and services related to the move you just made.  The data is ignored by the tax agencies, such as the IRS and the Department of Taxation, either of which might send you important information, such as an audit notice, to your old address long after the USPS’ automatic mail forwarding expires.  Under the tax law, it is sufficient for the tax agencies to send you notices at your last known address, so you can’t complain when they drain your bank account after they conduct an audit without your knowledge and then mail notices of assessment to the same address even if they know it is invalid. I know of a taxpayer who was sent a notice but happened to be out of town at the time. The mailing was returned to the Department. The Department forged ahead, and when the final assessment was sent to the same address, the taxpayer àreceived it and was aghast at what the Department had done in her absence.

This nightmare scenario cannot happen if you notify the tax agencies that you have changed your address — by filling out and sending in a government form.  For the IRS, it’s a Form 8822 for individuals or an 8822-B for businesses.  For the Department of Taxation, it’s Form ITPS-COA.

On this score the lower end of the income spectrum seems to be hit particularly hard.  Social safety net programs, such as TANF, require paperwork.  Healthcare via Medicaid?  More paperwork.  Unemployment benefits?  Different agency, different forms.  Refundable tax credits?  Still more paperwork.

A point where we differ from the author relates to tax credits.  The author argues that complex, bureaucratic social programs like welfare should be replaced with tax credits like the Child Tax Credit, which the author argues distribute cash with minimal paperwork.  But tax credits are not a replacement for social programs.  First, the tax credits result in a check going out (mailed to the taxpayer’s last known address) only once a year, while the taxpayer and family need to pay the rent every month and eat something more often than that.  Second, if we want social programs to offer highly tailored relief or if we want to impose eligibility requirements such as job-seeking requirements, a taxing agency is not equipped to tailor the relief or enforce the additional requirements.  Taxing agencies are built to bring revenue in the door, not to dish it out.

One of the recommendations we do agree on is for government agencies to share data more extensively.  Wouldn’t it be great, for example, if the tax agencies took notice of the USPS change of address feed like many other companies already do?  It wouldn’t only be nice, it would save the government so much in postage and returned mail costs. It would also spare the government from litigation against taxpayers who felt the tax agency should have given them notice but instead sent it to what they knew was an invalid address.

Weren’t we working on data systems in Hawaii government that were supposed to be able to talk to each other?  Hasn’t the effort been ongoing since the 2000’s?  What’s up with that?

When we think about tax cuts as a desirable goal, let’s also think about reducing the time tax.

And then there’s Ken Paxton. Yes, the Attorney General of Texas, candidate for Senator. He is the guy who, on behalf of Texas, sued Pennsylvania, Georgia, Michigan, and Wisconsin seeking to overturn their results in the 2020 presidential election.  (The US Supreme Court tossed out his suit.). He also made news when four whistleblowers whom he fired won a $6.6 million judgment against his office for wrongful termination.  (No skin off his back, though; Texas taxpayers wound up paying the tab.)

According to reporting from a nonprofit, university affiliated news organization in Texas, Mr. Paxton owns some property on Maui through a “blind trust,” meaning that he owns it, but someone else manages it for him, to cut down on possible conflicts of interest in his current position.

And the trust hasn’t paid his taxes.

According to Maui County property tax records, the real property tax for the first half of 2026 is due and unpaid. Some penalties and interest have been added.

The blind trust bought the property in October 2021. He’s had the property for a while and he had been paying property taxes on it until this year.

But, as readers of this column know all too well, the tax burden doesn’t stop there.

According to the Texas Tribune, the property was probably used a rental. Rental income is subject to our general excise tax, and perhaps our transient accommodations Tax if the rental was for fewer than 180 days.

Yet, in the Hawaii database of tax licensees which lists people and entities registered for GET, TAT, withholding, and other tax types, there is no Esther Blind Trust, or any name resembling it, to be found.

If there are GET and TAT taxes due and unpaid, the consequences may be severe. Folks who are required to file returns and pay taxes, but do neither, are routinely written up for 70% penalties. A 25% penalty is imposed for failure to file, another 25% for negligence, and another 20% for substantially underpaying taxes. In the federal system, you won’t see penalties this big because penalty stacking is limited. Not so under Hawaii’s tax laws.

To make things worse (for him), there is no statute of limitations to block the assessment. The statute of limitations starts running only if an annual return is filed.  With no returns filed, all past years are open for assessment.

And this trust won’t be able to shrug off the tax, penalties, and interest by simply saying that it doesn’t have money to pay them.  The Texas reporting says that the trust currently owns at least 15 properties with a total worth of about $9 million.

So, to our good friends at the Department of Taxation, we may have here some “low-hanging fruit.”

Celebrities should be following the law. They should be an example for the rest of us.

Sock it to ‘em, baby!

There are three ways to get into Tax Appeal Court:  assessment and appeal, payment under protest, and refund claim denial.

In the first, the Tax Department sends a “Notice of Assessment” saying that you owe tax, and you file an appeal in court.  You only have 30 days to file the appeal AND send a copy of your appeal to the Director of Taxation.

Complicating matters is that the 30 days starts from when the Department mails the letter to the taxpayer’s last known address.  What if the taxpayer is on the mainland or in a foreign country and gets the notice a couple of weeks later?  Then the taxpayer has two fewer weeks to get that appeal in.  What if the taxpayer has since moved but the Department doesn’t know the taxpayer’s current address and the mailed notice comes back undelivered?  Too bad, so sad.  The Department will tell you that it’s the taxpayer’s responsibility to keep a current address on file with the Department.

This route is the only way to get into court without paying the tax first.

Payment under protest means that you have a disagreement with the Department, you pay the tax in dispute with a letter explaining the dispute, and you then have 30 days to sue for a refund in Tax Appeal Court.

The good news is that this avenue of appeal is independent from assessment and appeal, so you can do this even if you have been assessed and the 30 days after the notice of assessment has come and gone.  The bad news — which the statute itself doesn’t explicitly tell you — is that there has to be some kind of official determination from the Department.  If you are being audited and the auditor says that there is no way in a hundred years that she will accept the taxpayer’s position, that isn’t good enough.  There needs to be an official ruling or at least a proposed notice of assessment.  If there isn’t, the court appeal is dismissed, and the Department keeps the money that you paid without a fight.

Finally, there is refund claim denial.  You, after paying tax to the Department, write them a letter saying that you want your money back.  Filing an amended return claiming a refund counts for this purpose.  If the Department writes you a letter saying that the refund claim is denied, you then have 30 days to file an appeal in Tax Appeal Court.  If the Department instead ignores you, you can treat their silence as a denial once six months have passed from the time your refund claim was filed.

Here again, there is a catch.  If the refund claim is barred by the statute of limitations, you lose.  The statute of limitations is generally three years from the due date of the return, but there are exceptions and qualifications depending on the kind of tax that is involved.

The moral of the story is this.  If you have, or think you may have, a dispute with the Department over taxes, get yourself a good tax practitioner who knows the rules and traps so you can skirt the edges and avoid falling into the pitfalls.  The Department’s lawyers are very familiar with the rules because they work tax cases every day.  Most normal people and even some tax lawyers are not as up on the nuances.

And then, of course, lawmakers need to take a look at these rules and change them to get rid of the unfairness.  We at the Foundation will try to help legislators understand the traps and get rid of them.

So, here is what I think.

Taxation is, primarily, a means of spreading the cost of a civilized society, namely the cost of our government, among the people who benefit from that government.

It’s easy to say that this cost should be spread fairly.  It is a much harder task to define what “fairly” is.

Some think that fairness means applying the same tax to everyone, everywhere, and to everything.  This comes close to describing our General Excise Tax.  Yes, it has exemptions and exclusions and reduced rates, but it comes far closer to pervasive fairness than most tax systems here or elsewhere.  The tax rate of 4.5% applies to most retail transactions, and it does not depend on anyone’s ability to pay the tax.  For that reason it is called a “regressive” tax, leading many to say that it is not fair.  Sales taxes, which most states impose, are the classic regressive taxes.

Some think that fairness means a tax that depends on ability to pay.  If you can pay more, then your fair share is more.  Our Net Income Tax, with several different tax brackets that apply higher rates to income over increasing thresholds, accomplishes this.  It’s called a “progressive” tax for that reason.  Most states have progressive income taxes, but most have fewer brackets (some have a “flat tax” with one bracket).  All have continuing political debate over what is a “fair share” to make people pay.

Most tax systems, including ours, also include items that detract from fairness.  There are two kinds.  Credits and incentives are typically given to encourage or reward social behavior that is seen as beneficial to society.  Clean energy credits, credits to encourage capital investment, and enterprise zone incentives are just a few examples.  The other kind works the opposite way.  Think of penalties and sin taxes, such as tobacco taxes or liquor taxes.  They are there either to penalize detrimental behavior or to pay for incremental costs that are associated with that behavior.  Credits and incentives, as well as penalties and sin taxes, are by definition unfair, but we as a society justify the unfairness by saying that it will accomplish a greater good.

So, what should we be looking for at our Legislature to be sure that lawmakers are focused on making taxes fair?

First, we need taxes and regulations that focus on real fairness and are not simply a manifestation of other motives such as envy, of which we have written before.  If there are going to be credits and incentives, we need to monitor the societal effects and sunset them when the desired results are achieved.  The same goes for the penalties and sin taxes, which are the other side of the same coin.

There are some taxes that we now have in place that do not fit the traditional mold of the sin tax.  Take the transient accommodations tax and the rental motor vehicle and tour vehicle tax, for example.  Do we have them for reasons other than “Because we can”?  Are there incremental social costs associated with hotel and rental vehicle activity that the taxes pay for?  Are the social costs and the taxes in alignment?

The same analysis should be done for social welfare programs administered through the tax system, such as the food/excise credit and the credit for dependent care services.  Are they properly and efficiently administered through the tax system, or should they be housed in, say, the Department of Human Services, our department that is specially equipped to deal with the downtrodden?

As of this writing, government agencies and legislators are hard at work drafting legislative proposals.  We hope that they will go through these analyses to better understand their proposals.

It concerns one of the special funds set up in the City Charter of Honolulu that is fed automatically by an earmark on property tax revenues.  We spoke about them a few weeks ago.  Today’s topic of discussion is the Clean Water and Natural Lands Fund.

Our alert constituent pointed out that although the annual earmark from property tax gives fund $8 to $9 million a year, the money in this fund has been piling up.  According to the City’s most recent budget document, this fund had, at the end of fiscal year 2025, an “Unreserved Fund Balance,” meaning cash that is neither spent nor encumbered, of $65 million.

The City Charter provision establishing the fund says that it can be used for preservation of beaches and coastal areas, as well as public outdoor recreation.

Now, let’s take a look at Ala Moana Regional Park.  The City & County of Honolulu calls it “one of the state’s oldest and busiest parks, currently seeing an estimated four million users every year.”

Due to erosion, the park beach requires sand replenishment periodically.  An effort to plan and gain approvals for the project was begun sometime around 2019, which is the date the U.S. Army Corps of Engineers issued a public notice asking for the public’s comments on an application for the project that the City had submitted to the Corps.

Six years later, we see an extension request being considered by the State Board of Land and Natural Resources for its approval of the work.  The extension request reads:  “Due to the continued impacts of COVID-19 on budgets and schedules, the Applicant was unable to comply with [a permit condition requiring work or construction to start within one year after approval] and a time extension was granted by [the Department of Land and Natural Resources] on February 24, 2022.  The City continues to seek funding for the project.  We respectfully request that [the existing permit] be again extended to allow adequate time for the Applicant to secure project funding and proceed with construction.”

So, on the one hand, we see that the City initiated an Ala Moana beach replenishment project in 2019 or earlier.  It had to and did get permits from the Army Corps of Engineers and the State Department of Land and Natural Resources.  They say they can’t execute the project because there’s no money to do so.

And, on the other hand, there is a special fund with tens of millions of dollars in it, and the scope of the fund includes preservation of beaches and coastal areas, including public recreation.

Is this making sense to you?

Furthermore, Ala Moana Regional Park surely isn’t the only beach out there that needs some TLC.

How about Waikiki Beach?  As recently as 2025 and 2026, officials were still pursuing planning, environmental review, and stabilization projects, indicating that substantial corrective work remains outstanding.

Why aren’t we using the tens of millions of dollars now in the special fund to at least make a dent in these problems?

Wake up, folks!  The Clean Water and Natural Lands Fund isn’t there simply to save up money for a rainy day.  It’s there to provide money for specific needs.  We have those needs and the projects, so let’s take care of them!

In addition to encouraging customers to donate up to $249 to their favorite participating nonprofits – like the Tax Foundation of Hawaii – at checkout, customers are also encouraged to contribute to the Give Aloha matching gift in the following ways:

• Donate 250 Maika‘i points, equivalent to a $5 donation
• Round up grocery purchases
• Donate spare change
• Purchase Give Aloha x Suzanne Jennerich merchandise

Funds raised through the bulleted points above will help increase Foodland’s Give Aloha Matching Gift for all 2026 participating organizations.

Whether someone gives spare change or $249, they can feel good knowing they helped in some way to support the great work that all of you do to help us build a better Hawaii.

*** HOW TO DONATE TO THE TAX FOUNDATION OF HAWAII ***

• let your cashier know you want to make a donation to the Tax Foundation of Hawaii
• be ready to give TFH’s organization code – 77689 – and the amount of your donation
• Your donation will appear on your receipt

The program supports scholarships for American students, but in a very indirect way.  It supports scholarship-granting organizations (SGOs), 501(c)(3) nonprofits that give out scholarship money to deserving primary and secondary school students.  Under the program, credits don’t go to the SGOs.  They go to individuals who donate money to the SGOs.  The federal nonrefundable credits match the individual donations, dollar for dollar, up to $1,700 per individual.  There are income limits for individual donors, so that donors get their donations matched if their income level is under a certain amount and get a tax deduction otherwise.

The SGOs, in theory at least, would be able to attract more donations from folks because those folks wouldn’t have a net economic loss.  And the SGOs could then give more money to more kids.

States have a role to play in this process too.  A state that opts in to the program is tasked with producing a list of qualified SGOs that award scholarships in that state.  This is, presumably, done to cut down the possibility of fly-by-night SGOs that take money and run.

Some states, including ours, were not eager to sign on to the program.  Would an opt-in election, for example, require the state to commit to specific Trump Administration policy priorities such as rescinding any DEI (diversity, equity, and inclusion) initiatives and terminating any LGBTQ support?  So far, the statute and existing Treasury guidance indicate that the only requirement to opt in is a commitment to come up with the SGO list.

Is this tax credit scheme just a way to implement a school voucher system, which would be politically problematic here because such a program tends to prioritize private schools over public ones, as HSTA and other school unions across the country have argued?  Not necessarily, as the nonprofit Edchoice.org argues, because SGO-granted scholarship money does not have to be spent on tuition.  It can go toward school supplies, transportation costs, fees for enrichment programs (band uniforms, for example), and other related costs listed in Internal Revenue Code section 530.

Shortly after the One Big Beautiful Bill Act became effective, some commentators wondered if opting in to the credit program would violate the Hawaii Constitution’s provision in Article X, Section 1 that taxpayer funds cannot be “appropriated for the support or benefit of” private education.  To us, this does not seem to be a problem because no state funds are appropriated and no state credits or other incentives are being awarded.

As a practical matter, furthermore, neither donors nor scholarship seekers are limited by Hawaii’s list.  They may donate to or apply for a scholarship from any SGO on any state’s list.  If Hawaii does not participate, the disadvantage will primarily be to smaller SGOs that are only known in Hawaii and thus might not make it to any other state’s list.

The only potential pitfall would be if the Trump Administration asserts that opting in to the program entails agreement to support Trump Administration policy positions.  So far, no such conditions have appeared in IRS preliminary guidance on the program, but, as some may say, the night is still young.

The letter concerns Granillo v. State, a 91-page opinion issued July 15, authored by Justice Todd W. Eddins and joined by Chief Justice Vladimir P. Devens and Justice Sabrina S. McKenna.  The case set a new Hawaii standard for post-conviction relief when forensic evidence presented at trial is later shown to be false.  The letter takes no issue with that state-law holding, but is concerned about the roughly eight pages that follow it, which the letter describes as “a sweeping attack on the integrity of the United States Supreme Court and its justices” across abortion, voting rights, campaign finance, partisan gerrymandering, presidential immunity, religious liberty, firearms regulation, administrative law, agency removal, federal spending programs, and birthright citizenship decisions out of the Court that have been handed down over the past few years.

The letter said that the eight pages were a screed that had nothing to do with the Hawaii Supreme Court’s holding.  This writer begs to differ.  Our supreme court noted that its decision was based on provisions of the Hawaii Constitution that are similar to those in the U.S. Constitution, but it was going to interpret our constitution differently, which it has the right to do, because there are interpretations of the federal constitution being handed down in recent years that our local justices could not stomach.  Those eight pages, which are not the court’s first swipe at SCOTUS and may not be the last, add to the justification for a Hawaii Constitution interpretation that differs from that of its federal counterpart.  “This court does not anchor Hawai’i’s due process rights to the federal floor,” the Granillo opinion says.  “Especially one that keeps sinking.”

The letter said that those parts of the Hawaii opinion were in defiance of the U.S. Supreme Court decisions and were harmful to the rule of law.  The letter cited what it called precedent “for taking disciplinary action against sitting judges who have wrongfully attacked the integrity of [the Supreme] Court.”

That precedent, however, a Seventh Circuit Judicial Council decision resolving complaints against a United States District Judge, actually says something else.  The Seventh Circuit case concerned a judge who wrote a law review article that was, like the Granillo opinion challenged here, sharply critical of U.S. Supreme Court decisions.  The Judicial Council stated:

The vast majority of Judge Adelman’s article at issue here consists of substantive criticism of Supreme Court decisions. Those criticisms are well within the boundaries of appropriate discourse. As noted above, much of Judge Adelman’s critique draws from the dissenting opinions of Justices in those decisions. Without endorsing or disagreeing with Judge Adelman’s views of those cases, the council finds no ground for discipline with regard to the vast majority of the article.

“Judges should expect tough criticism of their work,” the opinion added.  Sometimes their own colleagues, in dissenting opinions, are some of the harshest critics using the most pointed language.

We also observe that Judge Adelman was in a more vulnerable position because he was a federal judge whose court was supervised by the U.S. Supreme Court.  State court judges must follow federal interpretations of federal laws and the U.S. Constitution, but are in no way subordinate to the U.S. Supreme Court on issues of state law or the state constitution.  That is part of the way our government was set up.

We live in a society where freedom of speech is one of our most cherished values.  Judges, who discuss some of our most important legal and political issues, can be a key part of the debate on those issues.  We need to hear more from you, not less.

You go, Justices Eddins, Devens, and McKenna!

Our state does a lot of giving and taking when it comes to energy use.

We currently give tax credits for clean energy use and production.  I say “currently” because a bill enacted in this year’s legislative session terminates the tax credit for renewable fuels production as of the beginning of 2029, and imposes significant new limits on the renewable energy technologies credit now before doing away with it as of the beginning of 2030.

We also have a program called Hawaii Energy.  That program provides rebates and other incentives for people who are getting rid of old energy-using appliances, from light bulbs to water heaters and air conditioning units, and are replacing them with newer light bulbs or other appliances that are demonstrably more efficient than the old ones.

The rebates in the Hawaii Energy program don’t come from taxes.  Rather, they come from a state-mandated fee, known as the Public Benefits Fund surcharge under HRS section 269-121, that is charged to all electric consumers.  This includes renters, except perhaps for the few renters whose rent includes utilities.

Also on the taking side, we have special taxes that apply to energy consumption.  These include the fuel tax, which is applied to fuel for vehicles using the highways, and the barrel tax, which started off as a tax on imported petroleum but has since been expanded to include many different kinds of fossil fuels.

We then have a special registration fee surcharge, soon to be replaced with a road usage charge, for electric cars and other vehicles using the highways but don’t use fuel subject to the fuel tax.  Considered by itself, it looks like a penalty for using electric cars or alternative fuel vehicles.

With a new Legislature (well, mostly old but with a few fresh faces) coming in 2027, there are a few policy questions they might want to look at.  Mr. Lagon makes the point that contributions of renters (because they use electricity and are forced to pay in to the Public Benefits Fund) fund the rebates that are then made available to homeowners or property owners.  That sounds like a distribution of wealth away from the poor and to the rich(er).  But that impression isn’t quite right because the rebates reward the replacement of inefficient appliances, and the renters probably don’t own those appliances and so are in no position to effectuate the goal of pushing out old, inefficient appliances in favor of newer ones.

What we hope the Legislature will focus on is defining the vision for the future of our state, one that uses renewable energy or uses any energy efficiently perhaps, and then figuring out how we reach that vision.  Government generally provides infrastructure or services from which we all as a society derive benefits, and then distributes the cost of that infrastructure or services among those who derive the benefits, usually the taxpaying public.  The landscape of laws and regulations in which we find ourselves today is a mishmash of measures thrown together at different times to serve different needs.  When all the giving and taking is considered together, legitimate questions can be asked about who is benefiting and who is paying the price.  We then should be figuring out who matters, or what matters, and adjust our legal landscape accordingly.

This year, the Charter Commission has advanced 20 proposals to the November ballot.  Of these, six, or 30%, concern special funds.  Special funds are where your tax money goes outside of the normal budgeting and appropriation process.

The Charter now provides for five special funds in sections 9-204 to 9-206:  the Clean Water and Natural Lands Fund, the Affordable Housing Fund, the Climate Resiliency Fund, the Grants in Aid Fund, and the Honolulu Zoo Fund.  Each of the funds gets funding from an earmark on the real property tax, 0.5% of tax collections for each fund.  (The Grants in Aid Fund gets 0.5% off all general fund collections, which is a slightly different number.)  One of the charter proposals proposes to add a Food Security Fund, which would similarly be funded by a 0.5% earmark on the real property tax.

Other charter proposals seek to expand the uses of some of the funds.  Those proposals probably mean that those funds either are hoarding too much money now.  If not, we can probably look forward to lawmakers saying that the funds contain too little and that more tax money is needed for them.

We have previously spoken out about special funds, especially those in state government where we have around 2,000 of them.  Agencies that can spend money from special funds tend to spend them with little or no legislative oversight, and it becomes harder for the legislature and the public to keep track of the money the more special funds there are.  If you think it’s tough to balance a half dozen bank accounts, try 2,000 and see if your head doesn’t spin!  Furthermore, the earmark on tax revenues basically removes those revenues from any budgetary control.  If, for example, we had major damage caused by torrential rains, or a hurricane, or wildfires, could we use money in the Honolulu Zoo Fund to repair the damage?  Not unless the damage was to the zoo.  Not even the Mayor and City Council could do anything about it, because the special fund is in the charter and thus ranks above the Mayor and City Council.

Call me an old fogey, but I want budgeting decisions in the city in which I live to be made by elected officials.  Not bureaucrats who aren’t answerable to the people, not by artificial intelligence, and certainly not by voters picking some number out of the air and making the substantial dollar amount associated with that number avoid the checks and balances associated with our budgetary processes.

That way, if unforeseen problems or needs arise, then people are there to respond to the situation, people who are presumably concerned with the welfare of their constituents because their job depends on said constituents.

In short, if we don’t trust those fools in the City Council to make wise budget decisions, the answer isn’t to rewrite the budget ourselves using charter amendments.  We need to replace the fools with new ones.  That’s what our elections are supposed to be for.