Tweaking
tax-hike package
won’t satisfy opponents
Lawmakers are debating
several changes to the
task force's proposals
By Rob Perez
Star-Bulletin
Tweaking the numbers won't persuade Laura Manis to support Gov. Ben Cayetano's task force plan to restructure Hawaii taxes in hopes of boosting the economy.
It won't make a believer of Bette Tatum, either.
Both represent large but very different groups that are opposed to the Economic Revitalization Task Force's tax prescription for the economy.
Before Cayetano today recommended changing the plan, the tax overhaul -- just part of a wide-ranging package of regulatory initiatives designed to make Hawaii a better place to do business -- had as its centerpiece a 40 percent cut in personal income taxes and a 50 percent reduction in corporate income and franchise taxes.
It also called for a 34 percent increase in the general excise tax and a reduction in the GET's so-called pyramiding effect (taxing a tax), which adds to the cost of doing business here. All of those recommendations have been changed. (See story, page A-1.)
Cayetano today recommended that the GET be raised to 4.75 percent, instead of the 5.35 percent proposed originally, by deleting the pyramiding provision.
The pyramiding provision would have cut roughly $158 million in tax revenue annually. Without the need to make up for that cut, the excise tax would have to be raised only to the 4.75 percent level, according to Department of Taxation figures.
The excise hike -- the most controversial element of the tax package -- could be further reduced if, as some legislators suggest, the magnitude of the income tax cuts are pared.
Reducing the top personal rate, for instance, from 10 percent to 8 percent -- instead of 7 percent -- the first two years would spare another $100 million revenue cut annually, enabling the proposed excise-tax rate to be set at 4.45 percent, the Tax Department says.
But to Tatum, state director for the National Federation of Independent Business, which has thousands of small business members, that would be 0.45 percentage points too much.
"We're against any excise-tax increase," she said, arguing that an increase would hurt already-struggling small businesses.
Manis, lobbyist for the American Association of Retired Persons, which has 120,000 members locally, is equally adamant in her opposition.
But for the AARP, the excise tax isn't the only target. The organization opposes the entire tax package, claiming it would make Hawaii's system more regressive, giving the biggest benefits to the wealthy.
Even if the task force numbers are tweaked, the framework still would unfairly place a higher tax burden on low- and middle-income groups, Manis said.
The views of Tatum and Manis -- expressed before today's recommendations were made -- underscore the difficult job task force proponents face during the legislative session in trying to get lawmakers to approve the package.
Without legislative approval, the various proposals would die.
The bill implementing the tax recommendations began going through the hearing process this morning, and most legislators, lobbyists and others expect the measure to undergo change during the 60-day session.
How much change will depend partly on a key forecast expected next month. On March 6, the Council on Revenues meets to decide whether to revise its projections for state revenue growth. The forecast is used to craft the state's budget.
As lawmakers start tinkering with the task force proposals, some proponents worry that the package might be changed so much that it would become ineffective in stimulating substantial job growth and attracting new investment.
Asked if deleting the pyramiding provision and cutting income taxes to only 8 percent the first two years (then 7 percent the third year) would overly dilute the package, Seiji Naya, Cayetano's top man on the economy, said he didn't think so.
"If you tinker much more than that, I don't know," Naya said. "That would be sort of a minimum" to stimulate investment.
One bigger worry some proponents have is that next month's revenue forecast could be so dismal that legislators might not consider any tax cut -- let alone the large reductions the task force is advocating.
If the council forecasts a $200 million shortfall, "personally, I think this package is moot," businessman Barry Taniguchi, a task force member, told the House Finance Committee recently. "The tax package may have to be scrapped anyway."
Michael Sklarz, chairman of the council, said it was too soon to say whether the forecast will be revised downward.
