In my previous post, I talked about the most glaring problem in Hawaii: elected state officials who steal our tax money and give it to their friends. Although it may seem hopeless because corruption has been the norm forever, we can vote out everybody in power. We’ve failed to do so multiple times but there is a system that gives us the ability to change. What we can’t change is the reality of our situation and how expensive it is to live here.
In part 1, I highlighted how corruption has become a way of doing business in the Hawaii state government. In Part 2, I’ll demonstrate exactly corruption hurts the people of Hawaii way more than it would anywhere else, we don’t have any extra money to spare.
This is about the struggle that comes with living on an island in the middle of the ocean that doesn’t have enough natural resources and job opportunities to keep up with the population growth. I’m talking about the dreaded Paradise Tax.
What is the paradise tax?
Loosely defined, it’s a combination of three things:
- High state taxes
- The high cost of living
- Low wages
According to Wikipedia, it’s called “sunshine tax” (a terrible name) and it usually refers to lower salaries in temperate climates. Basically, it’s the “tax” we all pay to live in the most beautiful place on Earth.
This isn’t some sort of revelation. I doubt you’re reading this right now going “Hawaii is expensive? Thanks, I wouldn’t have known otherwise.” Living in the middle of the ocean means everything from food to clothes to furniture to gas to real estate is shipped here and far more expensive than it would be on the mainland. It also means we never have or will ever be a booming metropolis or center for commerce, companies here make less and pay less. And as I described in part 1 the government is full of incompetent thieves that keep raising taxes to cover up for their crimes.
All of these “Paradise Tax” factors combined make it really expensive to live in Honolulu. But exactly how expensive is the paradise tax? What is the cost of all these factors put together? And how do we compare to high-cost cities like San Francisco or New York?
In order to answer these questions, I pulled data from Honolulu, New York, and San Francisco on how much residents made on average (in salary and benefits) and how much they paid in taxes from 1980 – 2015. I thought I was being overly dramatic on how difficult it is to make a living out here, turns out the Paradise Tax effect is much, much worse than I thought.
Oh my God
Below is a graph that shows average gross wages from 1980 – 2015 for all 3 cities.
Honolulu’s bars are much smaller, that’s how you know it’s bad
In 1980, Honolulu ranked the lowest in total gross wages between the three cities, 23% lower than San Francisco and 21% lower than New York City. In 2015, you’ll see that Honolulu is still the lowest but the gap is now massive. Over the last 35 years, average Honolulu wages have increased by a TOTAL of $7,566 ($200/year!). If you made the average salary in 1980 and kept up with averages until 2015, you’d get a $200 a year raise. If my boss told me I was getting a “raise” that small I would consider setting the building on fire.
Wages have barely increased in the past 35 years. Just to put that in context, The Department of Housing and Urban Development (HUD) Income Limits Summary from 2018 defines “very low income” in Honolulu as $58,300 for a family of 4. “Low Income” for a single person is $65,350. So if you’re making the average salary in Honolulu, even HUD agrees you are very, very broke.
Honolulu also ranks third in cost of living right behind Manhattan and Brooklyn but our per capita income has grown at the same rate as Oklahoma City.
The good news is we’re catching up to JANESVILLE-BELOIT, WI
$50,000/year isn’t nearly enough to get by. How do I know? Because that’s how much my first job in Hawaii paid me. I was hired by a local company and accepted an embarrassingly low salary because it was my dream to get paid for writing. I naively thought there was a cheap way to live in Hawaii.
The cheap way to live in Hawaii
I also naively thought there was room for advancement if I performed well but that’s not how things work in Honolulu. There’s barely any opportunity for career advancement. Promotions and raises are based on loyalty and seniority due to a combination of factors which includes the local culture, Asian work culture, and sky-high attrition rate. Being successful is a combination of who you know and how long you stick around. Companies don’t invest in employees because they leave for the mainland, and employees leave for the mainland because their wages are too low to live here. It’s a vicious cycle.
In order to demonstrate how expensive the Paradise Tax is, let’s start with the average salary on Honolulu: $50,409 and see how far it gets us after subtracting normal expenses.
According to Bloomberg, in their article “The Best—and Worst—States to Avoid Income Taxes”, the state of Hawaii ranks 2nd for the highest average tax rate for single people, and 1st for married couples in the nation. Wallethub ranks Hawaii 49th in income tax burden for low and middle income and 45th for people with high incomes.
NY and SF have similarly high taxes, but they make way more money
As a percentage of total income, Hawaii has the 2nd highest tax burden in the U.S., which includes property taxes, individual income taxes, and sales & excise taxes. While the state of Hawaii doesn’t have a sales tax, consumers still get “taxed” through the General Excise Tax (GET). GET is a 4% (4.5% for Oahu) tax placed on businesses for the privilege of doing business in Hawaii. Most businesses pass on the GET to their customers which ultimately increases the cost of goods and services for everybody in Hawaii.
Unlike San Francisco and New York City where wages have outpaced the gradual increase in taxes, the lack of wage growth in Honolulu has made the tax burden worse. In Honolulu from 1980 to 2015, income tax increased from 27% to 28% of average gross wages. In the same time period for San Francisco and New York City, income tax decreased from 27% to 21% of average gross wages, respectively.
Taking our starting annual salary os $50,409 and subtracting $13,706 in taxes we’re left with $36,703.
In 1980, the average annual take-home pay for Honolulu residents was $31,132. In 2015, the average take home for Honolulu residents was $36,073. Honolulu’s average net income has grown by a paltry 16% in 35 years, compared to San Francisco’s growth at 90% and New York City’s at 69%. Look at this.
Would you just look at it
Honolulu wages have been flatlining for over 30 years. The lack of wage growth in Honolulu is troubling on its own but when you factor in taxes it’s frightening. We have the same high cost of living as SF/NY but we make half as much money. Then the state takes a huge portion of our meager earnings and pisses it away. That’s why I get so angry when the state announces new taxes but our infrastructure is still complete shit. Most people in Hawaii literally can’t afford to keep financing this incompetence.
After taxes, the next biggest expense is housing. Median home prices on Oahu (as of February 2019):
- Single family home: $790,000
- Condo: $420,000
Both those prices are the highest in the United States. That doesn’t mean every house is that expensive, you can still live in Waianae or Makaha for relatively cheap, but it does demonstrate how crazy things have gotten. In order to keep up with normal population growth and keep these prices manageable, 3,500 new housing units are needed per year in Oahu. However, Honolulu county approves, at most, 1,500 units per year for new development. That means we’re short 2,000 new homes every year which has created a perpetual housing shortage in Honolulu that will keep driving prices up.
So buying a home is out of the question, what about renting? Single-family home rent rates doubled in the last 10 years and are now at twice the national average. In 2015, Hawaii ranked 2nd highest in the nation of renters spending 35% or more of household income on rent, 5.7% higher than the U.S. average. According to a study conducted by the National Low Income Housing Coalition, the state of Hawaii ranks worst in the nation as far as highest housing wage. You have to make $35.20/hr to afford rent on a 2 bedroom home ($50,409/year comes out to about $24/hour).
So a 2 bedroom is out, but you can get a 1 bedroom apartment in Honolulu for $1,559 per month ($18,708 per year).
Subtracted from our after-tax annual wages of (36,703 – $18,708) we’re left with $17,995.
Let’s add in electricity, water, and internet, the three necessities in life. Numbeo.com says the average for Electricity, Heating, Cooling, Water, and Garbage for 915 sq ft Apartment is $204.05 ($2,448 yearly) and internet is $56.35 ($676 yearly). Although I’ve never seen a Spectrum bill that low let’s assume you split it with roommates and “cut the cord” so you don’t have to pay for cable boxes.
$17,995 (leftover income) – $2,124 (utilities) = $14,781.
Next up is transportation costs. The lack of quality infrastructure makes transportation in Hawaii the most expensive in the country. In Honolulu, residents spend an average of 16% of their income on transportation, compared to 11% in San Francisco, and 9% in New York City. In addition, gas prices are currently averaging $3.054/ gallon, the highest in the nation.
16% of total income ($50,409) is $8,065. $14,781 (leftover income) – $8,065 (transportation) = $6,716.
At least these costs will come down once the rail is finished. Traffic should be way better t-what? What happened?
Let’s talk groceries, or what we in Hawaii call “Kirkland brand rations”. According to the U.S. Department of Agriculture, a “thrifty food plan” in Hawaii for a family of four costs $1,161 a month. That is roughly $520 more than what the same food plan would cost on the mainland. Let’s assume you live by yourself and divide $1,161 by 4 ($290.25). That comes out to $3,483 a year.
$6,716 (leftover income) – $3,483 (Food) = $3,233
The average person spends about $161 per month on clothes which would come out to $1,932/year.
$3,233 (leftover income) – $1,932 (clothes) = $1,301
Average income in Honolulu = Broke AF
If you make the average income here, even if you live the poorest lifestyle imaginable, you’re left with $1,301 PER YEAR ($108 per month) to spend on literally everything else in your life. So you can afford to save $1,301 per year and stay at home 24/7, slowly going insane, or you can use your $25/week to buy a Costco size box of tissues and cry yourself to sleep. I didn’t even factor in things like Netflix, gym membership, Xbox/Playstation live, or any of the other monthly expenses that most people have. That $1,301 is if you do nothing but go to work, go home, eat your rations and sleep.
Keep in mind this is the AVERAGE income in Honolulu, not on the low side, not what homeless people make, the average across everybody. Most people have to get by on a shoestring budget because of the Paradise Tax. Nobody can afford to save, own property, or have any sort of financial freedom without debt under these conditions.
Why is it so hard to make a living here?
It’s too expensive to do business in Hawaii
Are Hawaii companies being greedy dicks? Do they take all of the money they saved from underpaying people, go home and swim around their swimming pools filled with gold coins?
While it would be easy to blame those gosh darn greedy capitalists for everything that’s not the problem.
Hawaii is the worst state in America to start a business due to the ridiculous amount of red tape and taxes. The only states worse than us? Alaska, West Virginia, and Mississippi. And you never want to be compared to West Virginia or Mississippi in any category.
Employing people here is way more expensive than it is anywhere else due to things like required healthcare coverage. In response to the regulations, companies have started to shift employee compensation from straight cash homie to benefits.
Look at my balls
Honolulu ($15,101) isn’t that far behind NY ($17,612) and SF ($18,224). In Hawaii, the state has heavy regulations to guarantee workers rights. That’s good, right? Not really. You can’t pay rent with benefits, Wanting to protect workers is understandable but the pendulum has swung a bit too far in one direction. Businesses have their hands tied when it comes to freeing up money for higher wages.
That being said, there’s also an attitude of “at least you’re in Hawaii!” or “you’re lucky to be working here!” from a lot of business owners. I’m not saying all local companies are led by Scrooge McDucks, but in my experience, this is used as a negotiating tactic. With the shockingly low unemployment and lack of opportunities, they have the upper hand, it would be naive to think they don’t use that to their advantage at least somewhat.
As the gap between expenses and wages continues to grow and the cost of doing business gets more expensive, all of the young, talented, local professionals and entrepreneurs will keep leaving in droves. And we need those people.
Our smartest, youngest people are leaving for the mainland, and can you blame them? It doesn’t make sense to live here if you can’t save money, buy a home, or live on your own until you’re 35. Hawaii has too many roadblocks and too few opportunities when compared to the mainland.
As Aisha Price from ‘ike summarized, “This drain of the State’s exceptional talent is attributed to Hawaii’s limited supply of high-value jobs, lower compensation, and our high cost of living.” These conditions lead to many of the youngest, highest performing, and skilled employees leaving the islands, also known as the “Brain Drain.”
Evidence of this can be seen in Hawaii’s rapidly aging population. As economist Paul Brewbaker points out, “In 1959, there were more than 30 persons of working age for each person age 65 and over. Today there are four working-age persons for each person 65 and over, and in twenty-five years there will be two.”
As the Paradise Tax causes the income/cost of living gap to widen, the state will continue to get older and less local. You know how all of those new high rises in Kakaako are completely black at night despite being 100% sold? There’s going to be a lot more of that. Honolulu is being built for people that don’t live here. And the next generation of leaders we need to help lead us into the future are getting squeezed out by the Paradise Tax.
There’s opportunity in the struggle
In part 1, I mentioned how Hawaii needs more leaders and less corrupt assholes destroying the public’s trust in the government. This time, I’m going to call all of us out, the residents of Honolulu. We have the power to change our leaders, to speak out collectively, to spread awareness about the issues we face and hold the government accountable. We love to talk story with each other and on social media about how fucked up things are (me included) but it rarely goes further than that. The government clearly isn’t going to police themselves, it’s up to us. We need laws that work for us, not for the friends of the corrupt people in power.
Corruption and waste are features of every government, the state of Hawaii is not unique in that regard, but this data proves that it impacts us much more severely. If Honolulu loses Federal funding for the rail due to corruption we’re going to be stuck paying for that with tax money we don’t have. Bribes, cash deals, exchanging favors, all of these things cause the government to pay for shitty solutions at a higher cost. That cost is passed on to us, and the state is already holding us by our collective ankles, shaking the loose change out of our pockets.
I’m hoping that by seeing this, people will understand how untenable this situation is. We need lawmakers with a long-term focus that will work for the people. Despite how impossible it may seem to fix things with Hawaii’s culture and history, the power is in our hands. We need relief from taxes, businesses need relief from regulations, we need policies that empower us to succeed in Hawaii instead of forcing us to leave.
This latest wave of corruption is terrible but it also presents an opportunity. Now is the perfect time to have our voices heard. The government will be walking on eggshells for the foreseeable future, let’s make it clear that we won’t tolerate this bullshit from the next wave of leadership. Honolulu needs better leaders and it ultimately falls on us to elect them.