As experience relates, a higher tax rate can sometimes cause people to act differently, so much so that a higher tax rate might just produce less revenues. Take for example the hike in the cigarette tax rate from 60 cents a pack few years ago to 80 cents and then to one dollar per pack. Some people gave up smoking because the price got too unreasonable while others found ways to purchase their cigarettes from sources where the tax was not imposed - from military installations or from the mainland via mail order or Internet. The result was that cigarette tax revenues materialized at nearly two-thirds of what had been forecasted. Too often elected officials forget that the second half to the revenue raising formula is the base.
Taxes collected is the product of the tax rate multiplied by the tax base.
The larger the base, the lower the tax rate has to be to generate the same amount of money that a narrow tax base would require. The obvious example is the state's general excise tax. Unlike the sales tax structures found on the mainland, the Hawaii general excise tax base is all encompassing. It includes not only goods, but services. It taxes not only retail transactions but wholesale transactions, that is, it taxes not only purchases for final consumption but purchases for resale.