tax

SUNSEEKERS heading to Hawaii must now shell out more money to cover a tourist tax hike.

Government officials have praised it as a new “green fee,” but opponents have slammed it as a “surf tax” which bumps up accommodation prices.

Hawaii Gov. Josh Green signed legislation last May to generate an estimated nearly $100 million annually.

The “green fee” adds about $3 per night to your bill if you’re booking a $400-per-night hotel room, according to Aloha Hawaiian Vacations.

“Some are praising it as a much-needed environmental investment,” it added.

“Others feel like it’s just another added cost at a time when tourism still hasn’t fully bounced back post-pandemic.”

Forbes described it last month as a “first-of-its-kind visitor levy in the United States aimed at funding climate resilience and environmental conservation in the state.”

The levy raises rates on hotel room, vacation rentals and short-term rental stays.

The government also wanted to charge cruise line passengers, but the new charge is being challenged by industry officials in a lawsuit.

Money raised through the tax is to be invested in climate disaster resilience and environmental protection, according to the government.

“Visitors are willing to pay a climate impact fee in order to support Hawaiʻi’s environmental protection efforts and preserve the beauty and cultural heritage of the islands for future generations,” it explained last May.

SURF TAX

But, some tourists have resisted what they’re calling a “surf tax” said the Robb Report.

There’s also been some negative comments on social media, where it’s been slammed as a “money making” venture, and a “disgusting cash grab” which will “make Hawaii even more unaffordable.”

“We have no emissions testing on cars in Hawaii, but now we’re suddenly concerned about pollution and are going to place a climate tax on tourists?” asked one resident.

“This is about greed and incompetence, not the environment.”

Hawaii does not require a mandatory tailpipe emissions test – also known as a “smog check,” for vehicle registration, said Engineer Fix.

“Unlike many states that quantify pollutants like hydrocarbons and nitrogen oxides, Hawaii does not perform this type of performance-based assessment.”

Visitors have been charged the new levy since January 1, after it was signed into law last May.

The tax was prompted by recent natural disasters, including the 2023 Maui wildfires that killed more than 100 people and destroyed thousands of structures.

It raises the state’s transient accommodations tax (TAT) by 0.75% for a total of 11% placed upon the nightly lodging rate, said the governor last May.

Prior to its approval, officials had signaled hopes to slug tourists $40 to raise “$200 million in conservation workforce revenue.”

However Senate Bill 1396 instead increased the TAT rate by a more modest 0.75% – rather than a higher fee.

Supporters are thrilled that money raised will be spent on projects such as replenishing beach sand, coral reef rehabilitation, plus fire prevention projects.

“As an island chain, Hawaii cannot wait for the next disaster to hit before taking action,” said Gov. Green last June.

“We must build resiliency now, and the green fee will provide the necessary financing to ensure resources are available for our future.”

The cruise ship industry has managed to avoid the fee – for now.

An 11th-hour reprieve was granted by the federal appellate court, reported Civil Beat on January 1.

“Judges upheld the cruise industry’s request that its ships not have to pay the new fee while in port — or to pay any of the visitor taxes already charged to hotels and vacation rental owners — while the battle over their inclusion plays out in court.

“That means Hawaii will see a 10% decrease in expected revenue from the nation’s first green fee while the injunction is in effect.

“That reduction would become permanent if the industry’s main trade group, Cruise Lines International Association, prevails in court.”

Reporting from Sacramento — Soda companies got a respite last week from battling local taxes on sugary beverages, after California lawmakers grudgingly passed a 12-year ban on cities and counties imposing the levies.

That reprieve might be short-lived.

Major healthcare groups announced Monday that they will pursue a statewide soda tax initiative on the 2020 ballot to pay for public health programs. And in another jab at the beverage industry, the initiative would enshrine in the California Constitution the right of local governments to impose soda taxes.

“Big Soda has been a major contributor to the alarming rise in obesity and diabetes,” said Dustin Corcoran, chief executive of the California Medical Assn., a principal backer of the initiative. “We need to address this crisis now, and this initiative gives voters a real opportunity to do that.”

The proposed 2-cents-per-fluid-ounce tax would mean an additional 24 cents tacked onto the cost of a 12-ounce can, or an extra $1.34 for a 2-liter bottle sold in the state.

The proposal sets the stage for a marquee statewide battle between health groups and the soda industry — a feud that has been simmering in California’s cities and counties for years and burst into full view in the state Capitol last week.

California bans local soda taxes »

With the battle lines forming for 2020, the soda industry has had little time to savor its recent victory.

The companies won a 12-year ban on local soda taxes from legislators in exchange for a promise from business groups to withdraw a ballot initiative that would have required cities and counties to get supermajority approval from voters to raise any new taxes. That initiative, which had qualified for the November ballot, panicked mayors and labor groups representing local government workers with the prospect of a higher vote threshold that could stymie efforts to collect new tax revenue for cities and counties.

Minutes after Gov. Jerry Brown signed the bill that contained the soda tax ban, proponents pulled their broader tax initiative from the ballot.

The eleventh-hour deal infuriated public health groups and a number of legislative Democrats, who likened the soda industry’s leverage play to “extortion.”

“We were disappointed that the American Beverage Assn., and their member companies, went to such great lengths to take away the right of Californians to vote for better health,” said Nancy Brown, chief executive of the American Heart Assn.

But the maneuver prodded the California medical and dental associations to respond. The initiative, according to proponents, would raise between $1.7 billion and $1.9 billion in a statewide levy on soda and other sugary beverages, with money going toward programs to combat and prevent diabetes and obesity — both commonly linked to consumption of those drinks.

The tax would not apply to diet sodas, fruit and vegetable juices with no added sugar and drinks in which milk is the primary ingredient.

“Big Soda may have won a cynical short-term victory but, for the sake of our children’s health, we cannot and will not allow them to undermine California’s long-term commitment to healthcare and disease prevention,” Corcoran and Carrie Gordon, chief strategy officer of the California Dental Assn., said in a statement.

Brown of the American Heart Assn. said her group backs a statewide tax and efforts to roll back the local ban.

“We will be relentless in our work with communities across the state to improve public health through a statewide tax, and to restore the rights of Californians to vote for what they believe best supports health in their state,” she said.

The two organizations partnered with other public health groups, along with the Service Employees International Union, to successfully raise tobacco taxes by $2 per pack in 2016.

“Everyday grocery shoppers in California are struggling with affordability in the state — from housing to transportation to taxes. Rather than further driving up costs at the supermarket, we believe there is a better way for health advocates, government and California’s beverage companies to work together to help people reduce sugar consumption while at the same time protecting consumers’ pocketbooks and the small businesses that are so vital to our communities,” said William M. Dermody Jr., spokesman for the American Beverage Assn.

The soda industry has long fended off taxes at the state and local level. Berkeley became the first to pass a tax in November 2014 and since then, three other Bay Area cities — San Francisco, Oakland, and Albany — have imposed their own levies.

Until recently, the battle over a statewide soda tax had been fought — and won — by the industry in the Legislature. A recent legislative analysis counted proposals dating back to 1983 that had fizzled at some point during negotiations in Sacramento.

One recent effort was a 2013 bill by state Sen. Bill Monning (D-Carmel) to impose a penny-per-ounce tax, half the size of the tax under the proposed initiative. Assemblyman Richard Bloom (D-Santa Monica) sought a 2 cent-per-ounce tax in two successive bills in 2015 and 2016; both measures failed to advance.

“These products are dangerous,” Monning said last week during Senate debate over the bill that now bans local soda taxes. “We label and tax tobacco because we know what it does. We should label and tax these products and let people have informed choice.”

Times staff writer John Myers contributed to this report.

Coverage of California politics »

melanie.mason@latimes.com

Follow @melmason on Twitter for the latest on California politics.

Carney has been under pressure from the opposition to lower prices of food and other essentials for lower-income people.

Canadian Prime Minister Mark Carney has announced a multibillion-dollar package as part of a series of measures aimed at lowering the costs of food and other essentials for low-income families.

On Monday, Carney announced a five-year 25 percent boost to the Goods and Services Tax (GST) credit that starts this year.

The GST credit, which is being renamed the Canada Groceries and Essentials Benefit, will provide additional, significant support for more than 12 million Canadians, Carney said in a statement.

The government will also provide a one-time top-up equivalent to a 50 percent increase this year to eligible residents.

“We’re bringing in new measures to lower costs and make sure Canadians have the support they need now,” Carney said.

The measures would cost the government 3.1 billion Canadian dollars ($2.26bn) in the first year and between 1.3 billion Canadian dollars ($950m) and 1.8 billion Canadian dollars ($1.3bn) in each of the following four years, he told reporters at a news conference, according to the Reuters news agency.

While overall consumer price inflation in Canada has eased and came in at 2.4 percent for December, “food price inflation remains high due to global and domestic factors, including supply chain disruptions, higher US tariffs from the trade war and climate change/extreme weather”, Tony Stillo, director of Canada Economics at Oxford Economics, told Al Jazeera.

The government is also setting aside 500 million Canadian dollars ($365m) from the Strategic Response Fund to help businesses address the costs of supply chain disruptions without passing those costs on to Canadians, and will create a 150 million Canadian dollar ($110m) Food Security Fund under the existing Regional Tariff Response Initiative for small and medium enterprises and the organisations that support them.

Changing landscape

“The global landscape is rapidly changing, leaving economies, businesses, and workers under a cloud of uncertainty. In response, Canada’s new government is focused on what we can control: building a stronger economy to make life more affordable for Canadians,” Carney said.

The new measures were unveiled on the day Parliament resumes after its winter break.

Opposition parties have urged Carney to reduce prices of daily goods, especially as sections of the economy have come under pressure from United States President Donald Trump, who has slapped 35 percent tariffs on the country as well as separate tariffs on steel, aluminium and lumber, leading to job losses in those sectors.

Over the weekend, Trump escalated his threats and said he would impose a 100 percent tariff on Canada if it makes a trade deal with China. Carney has been working on diversifying Canada’s exports away from the US, its biggest trading partner and to which nearly 80 percent of its exports went last year, including by increasing business with other markets like China.

In the roiling debate over California’s proposed billionaire tax, supporters and critics agree that such policies haven’t always worked in the past. But the lessons they’ve drawn from that history are wildly different.

The Billionaire Tax Act, which backers are pushing to get on the November ballot, would charge California’s 200-plus billionaires a one-time, 5% tax on their net worth in order to backfill billions of dollars in Republican-led cuts to federal healthcare funding for middle-class and low-income residents.

Critics of the proposal have argued that past failures of similar wealth taxes in Europe prove they don’t work and can cause more harm than good, including by driving the ultra-rich out. Among those critics is San José Mayor Matt Mahan, a tech-friendly Democrat who is contemplating a run for governor.

“Over the last 30 years, we’ve seen a dozen European countries pursue national-level wealth taxes,” Mahan said. “Nine of them have rolled them back. A majority have seen a decline in overall revenue. It’s actually shrunk the tax base, not increased it, and it’s because it creates a perverse incentive and drives capital flight.”

Backers of the measure acknowledge such failures but say that they learned from them and that California’s proposal is stronger as a result.

Brian Galle, a UC Berkeley tax law professor and one of four academic experts who drafted the measure, said if it gets on the ballot, every voter in the state will receive a copy of the full text, a one-page explainer on what it does, and nearly two dozen additional pages of “rules for preventing wealthy people and their army of lawyers from dodging” it.

Many of those rules, he said, are based on historical lessons from places where such taxes have failed, but also where they’ve succeeded.

“If you understand the actual lessons of history, you understand that this bill is more like the successful Swiss and Spanish wealth taxes,” Galle said. “Part of that is learning from history.”

Warnings from Europe

Since the 1990s, several European countries have repealed net wealth taxes, including Austria, Denmark, Finland, France and Germany.

A major example cited by critics of the California proposal is France, which implemented a much larger wealth tax on far more people, including many millionaires. The measure raised modest revenues, which fell as rich people moved out of the country to avoid paying, and the measure was repealed by the government of President Emmanuel Macron in 2017.

In a 2018 report on net wealth taxes, the Paris-based Organization for Economic Co-operation and Development found that European repeals were often driven by “efficiency and administrative concerns and by the observation that net wealth taxes have frequently failed to meet their redistributive goals.”

“The revenues collected from net wealth taxes have also, with a few exceptions, been very low,” it found.

Critics and skeptics of the California proposal say they expect California to run into all the same problems.

Mahan and others have pointed to a handful of prominent billionaires who already appear to be distancing themselves from the state, and said they expect more to follow — which Mahan said will reduce California’s “recurring revenue” beyond the amount raised by the one-time tax.

Kent Smetters, faculty director of the Penn Wharton Budget Model, which analyzes the fiscal effects of public policies, said net worth taxes in other countries have “always raised quite a bit less revenue than what was initially projected,” in large part because “wealth is easy, as it turns out, to try to reclassify or move around” and “there’s all these tricks that you can do to try to make the wealth look smaller for tax purposes.”

A bus in London promotes a campaign by British millionaires advocating for an end to extreme wealth and inequality.

(Carl Court / Getty Images)

Smetters said he expects that the California measure will raise less than the $100 billion estimated by its backers because billionaire wealth in California — much of it derived from the tech sector — is relatively “mobile,” as many tech barons can move without it affecting business.

“Policymakers have to understand that they’re not going to get nearly as much money as they often project from a purely static projection, where they’re not accounting for the different ways that people can move their wealth, reclassify their wealth, or even just move out of the state,” Smetters said. “So far, we only know of a few people — with a lot of money — who have moved out of the state, [but] that number could go up.”

Kevin Ghassomian, a private wealth lawyer at Venable who advises rich clients, said he expects the administrative costs of enforcing the tax to be massive for the state — and much greater than the drafters have anticipated.

On the front end, the state will face a wave of legal challenges to the tax’s constitutionality and its retroactive application to all billionaires living in the state as of the end of 2025.

Moving ahead, he said, there will be litigation from wealthy individuals whose departure from California is questioned or who dispute the state’s valuation of their net worth or individual assets — including private holdings, which the state doesn’t have extensive experience assessing.

Valuating such assets will be “a nightmare, just practically speaking, and it’s going to require a lot of administrators at the state level,” Ghassomian said, especially considering many California billionaires’ wealth is in the form of illiquid holdings in startups and other ventures with fluctuating market valuations.

“You could be a billionaire today, and then the market plummets, and now all of a sudden, you’re a pauper,” he said. “It could really lead to some unfair results.”

Lessons from Europe

Backers of California’s proposal said they have accounted for many of the historical pitfalls with wealth taxes and taken steps to avoid them — including by making it harder for wealthy Californians to simply shuffle money around to avoid the tax.

“There are a lot of provisions that are designed based on what has worked well in other countries with wealth taxes in the modern era, especially Switzerland, and there are also provisions meant to shut down some of the holes in some of the earlier wealth tax efforts, especially the France one, that were viewed as not successful,” said David Gamage, a University of Missouri tax law professor and another of the proposal’s drafters.

Galle said the Organization for Economic Co-operation and Development study found that many of Europe’s historical wealth taxes “hadn’t figured out how to solve the problem of what small businesses were worth,” so were more narrowly focused on publicly traded stock and real estate. “Over time, there was a lot of abuse where people shifted their assets to make them look privately held.”

The California proposal “tries to solve that problem” by including small businesses and other privately held wealth in their calculations of net worth, he said — and benefits from the fact that such wealth has gotten a lot easier to track and appraise in recent years.

Doing so would be a familiar exercise for many California billionaires already, he said, as it is hard to raise venture capital, for example, without audited financial statements.

Backers of the measure said it is harder for U.S. citizens to avoid taxes by moving abroad than it has been for Europeans, and that evidence from Switzerland and Spain suggests differing tax rates between a nation’s individual states do not cause massive interstate flight.

San José Mayor Matt Mahan, who might run for governor, opposes the proposed tax on California billionaires.

(Rich Pedroncelli / Associated Press)

For example, each state in Spain sets its own wealth tax rate, and Madrid’s is 0% — but that has not caused an exodus from other parts of Spain to Madrid, Galle said.

The risk of California billionaires avoiding the tax by simply moving to another U.S. state was further mitigated by the measure’s Jan. 1 deadline for avoiding the tax. Galle said the deadline “was intended to make it more difficult for individuals to concoct the kind of misleading, apparent moves that wealthy people have used in other places to try to avoid a wealth tax.”

Gamage said that “history shows if a tax on the wealthy can be avoided by moving paper around, claiming that you live in another location without actually moving your life there, moving assets to accounts or trusts nominally in foreign countries or other jurisdictions, you see large mobility responses.”

But when “those paper moves are shut down,” there’s much less moving — and “that’s the basis for the California model,” he added.

The outlook

Ghassomian, who said he has been “fielding a lot of inbound inquiries from clients who are just kind of worried,” said it is clear that the proposal’s authors “have done their homework” and tried to design the tax in a smart way.

Still, he said, he has concerns about the cost of administering the tax outpacing revenues, especially amid litigation. Residency battles alone with billionaires whose claims of departing the state are questioned could take “years and years and years” to resolve, he said.

“The revenue has to line up with expenditures, and if you can’t count on the revenue because it’s going to be tied up in courts, or it’s going to be delayed, then I think that creates some real logistical hurdles,” he said.

Smetters said predicting revenues from a tax on so many different types of assets is “really hard,” but one thing that has generally held true through history is that “most countries, even with less-mobile wealth, typically do not get the type of revenue that they were hoping for.”

David Sacks, a venture capitalist and President Trump’s AI czar who decamped from California to Texas, said on the sidelines of the World Economic Forum in Davos, Switzerland, last week that the measure was an “asset seizure” more than a tax, and that the state would be headed in a “scary direction” if voters approved it.

Darien Shanske, a tax law professor at UC Davis and another drafter of the proposal, said he and his colleagues did their best to “look at the lessons of the past, and apply them in a way that makes sense and is generally fair and administrable” — in a state where wealth inequality is rapidly growing and a wealth tax presents unique opportunities.

“Having a tax on billionaires does make particular sense in California because of the large number that live here and the large number who have made their fortune here,” he said.

Shanske said the proposed tax is designed to provide California a way to “triage” soaring healthcare premiums resulting from legislation enacted by the Trump administration and congressional Republicans. The proposal asks for contributions from people who will quickly recoup what they are taxed given the exponential growth of their assets, he said.

Emmanuel Saez, director of the Stone Center on Wealth and Income Inequality at UC Berkeley and another drafter of the measure, said many of the repealed European taxes targeted millionaires while providing loopholes for billionaires to avoid paying, whereas California’s measure is “exactly the reverse.”

He said the measure will raise substantial revenue in part because California billionaire wealth more than doubled from 2023 to 2025 alone, and is “the innovative and first-of-its-kind tax on the ultra-wealthy that the moment requires.”

Thomas Piketty, a French economist and author of “Capital in the Twenty-First Century,” called California’s proposed tax “very innovative” and “relatively modest” compared with massive wealth taxes after World War II — including in Germany and Japan — and said it would not only improve healthcare in the state but “have an enormous impact on the U.S. and international political scene.”

“In the current context, with a deeply entrenched billionaire class, wealth taxes meet even more political resistance than in the postwar context, and this is where California could make a huge difference,” he said. “The fact of targeting the revenue to health spending is also very innovative and can help convince the voters to support the initiative.”

Times staff writer Seema Mehta contributed to this report.