Cayetano: Higher taxes
won’t hurt isle tourism

‘If you want to go to San Francisco,
you don't say what's the room tax’

By Rob Perez
Star-Bulletin

Gov. Ben Cayetano says he doesn't agree with tourism industry claims that raising taxes paid by tourists will hurt Hawaii's top industry.

"That's a red herring," Cayetano said yesterday, defending the state's economy-boosting plan unveiled a day earlier.

The Economic Revitalization Task Force recommendations include raising the state's hotel-room and general excise taxes, part of a strategy to lower income taxes for residents and businesses and to shift more of the burden to tourists.

While the industry lauded the proposal to set up a dedicated funding source for tourism marketing, it raised concerns about the effects of raising the two taxes as Hawaii faces increasing competition from other destinations.

Cayetano, however, downplayed the concerns, comparing them to when the industry raised a ruckus years ago over the proposal to establish the hotel-room tax.

The industry claimed the tax would hurt tourism, but growth rates in the subsequent years were the highest the state has ever seen, Cayetano said.

Raising the tax from 6 percent to 7 percent -- as proposed by the task force -- likewise shouldn't hurt the industry, he said.

"If you want to go to San Francisco, you don't say what's the room tax," Cayetano said in a meeting with the Star-Bulletin's editorial board.

The session was part of the governor's campaign to sell the task force plan to the public.

The plan must be approved by the Legislature.

Cayetano acknowledged that interest groups will lobby the Legislature to change parts of the plan they don't like. But he said he was confident the package will be adopted intact.

Still, critics already are attacking individual proposals, even if they like the overall package.

Mike Sklarz, research director for Prudential Locations Inc., said the negative effect on businesses of raising the GET (from 4 percent to 5.35 percent) will outweigh the benefits taxpayers will enjoy from the income tax reduction.

"You're going in the wrong direction," Sklarz said.

But he said many other elements of the package were positive. "It's a great first step."

Even though the higher GET would mean an increase in consumer prices, taxpayers will see a net tax savings because of the other changes proposed, including a 40 percent personal income tax reduction over three years, Cayetano said.

"You put it in context and the taxpayer will say, 'OK, I understand this now, I'm making out.' If you don't put it in context, he might get upset," Cayetano said.

The governor noted that his annual income tax savings, if the task force proposal is adopted, would be roughly $1,200. He now pays about $3,000 annually.

In the wide-ranging interview, Cayetano:

Refused to say which government programs he would consider phasing out if the $400 million reduction in tax revenue projected over three years isn't sufficiently offset by increased economic activity.

Noted that the idea to legalize gambling didn't even muster enough support among task force members to warrant discussion.

Said all 26 members signed a pledge to support the entire package when it goes before the Legislature. "It was like a Boy Scout pledge."

Said all the main proposals he supported were in the final plan.

Meanwhile, Cayetano is finding that the task force's proposal to eliminate the state Land Use Commission doesn't please everyone.

While environmentalists and native Hawaiians have criticized the proposal saying it caters to development interests, Big Island Mayor Stephen Yamashiro said the proposal doesn't go far enough. Yamashiro said he'd like to see the governor also eliminate the state Commission on Water Resource Management.

Cayetano said environmentalists and others will be able to express their opinions as projects are proposed at the county level.

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