Lawmakers jumpy
over excise tax
hike plan

They feel the task force proposal
for the boost along with the income tax
cut will hurt more than help

By Richard Borreca
Star-Bulletin

United in their fear that doing nothing will be a disaster for Hawaii's economy and their political future, legislators now worry that the governor's proposal to raise excise taxes while cutting income taxes may hurt more than help.

The tax proposal has become the most controversial element in a series of recommendations coming from Gov. Ben Cayetano's economic recovery task force.

"I think it is going good except for the concern for the GET (general excise tax)," says Gary Rodrigues, public worker labor leader and task force member.

Rep. Calvin Say, House Finance Committee chairman and one of the Legislature's senior budget analysts, predicts the task force, which meets Wednesday, will have to change the proposal."It is not now set in concrete," he said.

Speaking of the task force members, Say speculated that while they would have "liked the public to adopt the proposals, the task force will have to incorporate them in a new proposal: a draft one proposal."

The theory behind the proposal is that income tax reductions will translate directly into more spending by local residents at the same time that it makes Hawaii appear as a more attractive place to relocate or start a business.

To make up some of the money lost to the tax cuts, Cayetano's proposal calls for raising the excise tax. Finally, the governor also proposes reducing how the excise tax is applied between companies, an effect called pyramiding, which has long been criticized by small businesses.

Last week, Cayetano offered a trade, saying that if excise taxes weren't raised as much as first planned, 34 percent, then some or all of the pyramiding general excise tax would have to remain.

Rodrigues likes that idea and says he may propose it to the task force.

"Our hope is pyramiding would disappear. The savings to business would then be transfered to consumers in the form of a reduction of price.

"But there is no guarantee of that, so there is a flaw in our plan," he said.

Meanwhile, another key member of the task force, House Speaker Joe Souki, remains convinced that the original set of recommendations is solid.

"I'm not recommending any changes, I don't think they need any changes. I'm happy with it and I was one of the leaders of it," Souki said.

Asked about the objections from Say, Souki rolled his eyes and promised a talk with Say. "He's giving me heartburn," Souki said.

Also worried, but for another reason, is Sen. Roz Baker, co-chairwoman of the Ways and Means Committee.

The entire premise of raising money from something as volatile the general excise tax, to run the state may not make sense, she says.

"I am trying to keep open mind, but I have some serious questions," she said. "I am not convinced that the current package is the only route to take."

Another labor leader, John Radcliffe, associate director of the University of Hawaii Professional Assembly, says the state's no-growth economy is forcing people to make difficult choices.

"I think there are a significant number of people who are not interested in ideology and who are looking for a way out of the economic dilemma, they are ready to go for anything," he said. "Those who are bound by principle and ideology are questioning this."

Legislators and labor leaders, however, agree that if something isn't done to change Hawaii's flamed-out economy, the voters will start their own bonfire next November.

"The task force has to succeed or else, that is the dilemma," Radcliffe said. "There is not a lot of room left for failure here. We can't just get by on being cute, we have to compete."

Baker agrees, saying "doing nothing is unacceptable."

"The political fallout will be if we don't do anything," she said.