Senate and House bills
are on a collision course

By Rob Perez and Mike Yuen
Star-Bulletin

The state House and Senate are headed for a showdown on whether to raise the general excise tax as part of a sweeping package designed to boost the economy.

The Senate Ways and Means Committee last night approved a proposal by Gov. Ben Cayetano's economic task force to cut personal income taxes 25 percent to 40 percent, but deleted the most controversial element of the task force plan: a 19 percent hike in the excise tax.

The Senate panel wants the GET to stay at the current 4 percent.

But the House Finance Committee earlier in the evening approved a proposal that would raise the excise tax to 4.5 percent while cutting income tax rates 20 percent to 35 percent.

Cayetano's Economic Revitalization Task Force, which included House Speaker Joe Souki and Senate President Norman Mizuguchi, originally had proposed raising the GET to 5.35 percent, to help offset revenue loss from what would be the largest income tax reductions in state history.

When criticism of the GET hike mounted, however, Cayetano lowered the proposed rate to 4.75 percent.

The full House and Senate now must approve the plans approved by their respective money committees before the bills can be sent to the other side for consideration.

Differences then would be ironed out by a conference committee of members from both chambers.

Legislators and lobbyists, however, already have started staking out positions.

Sen. Rosalyn Baker (D, Lahaina), co-chairwoman of the Senate panel, said raising the excise tax is not negotiable. She said opponents to the task force plan clearly told legislators they don't want any increase.

"By and large, the community said that's not acceptable," Baker said.

Bette Tatum, a lobbyist for small businesses, also was emphatic in her opposition to a GET increase. She said lawmakers would be committing political suicide in an election year if they voted for an increase.

"When I learned the Senate Ways and Means' decision, I really thought I had died and gone to heaven," she said in lauding the panel's position.

Even on the House side, resistance to an excise tax hike remains among the Democratic majority and Republicans.

Democratic Reps. Michael White (D, Lahaina) and Lei Ahu Isa (D, Puunui) joined the four Republicans on the Finance Committee in voting against the main tax bill. The measure passed 11-6.

White said the proposed increase would be a disincentive for businesses.

Like Cayetano's recommendations, both legislative plans restructure the tax system so middle- and lower-income households get the biggest cuts.

The Senate committee proposal also retains the 30 percent cut in corporate income and franchise taxes recommended by Cayetano -- something the House group rejected.

The two restructuring plans would slash tens of millions of dollars in tax revenue, forcing the state to cut services, eliminate jobs and lay off workers.

Despite such fallout, Souki (D, Wailuku) said the House proposal, which would reduce state revenue by $421 million over three years, would help the economy.

"Bottom-line, this package puts money in the pockets for every citizen and is the boost Hawaii's economy needs," Souki said.

The Ways and Means proposal would cut tax revenue by roughly $345 million, said Baker and co-chairwoman Sen. Carol Fukunaga (D, Makiki).

They are proposing to make up that shortfall without raising the excise tax by, among other measures, eliminating 75 percent of the state's 2,300 vacant positions, reducing salaries across the board by an unspecified amount, and enticing employees to take early retirement so many of those jobs can be abolished.

Such action would reduce the number of layoffs needed, Baker and Fukunaga said.

Their panel also is expected to propose dropping three of the state's 13 holidays: Presidents Day, Good Friday and Admissions Day.

Adding another twist, Ways and Means last night eliminated the low-income tax credit recommended by Cayetano's task force and instead proposed that food purchased for home consumption not be subject to the excise tax.

The House committee retained the low-income credit but doesn't exempt food purchases from the GET.

Ways and Means passed the main tax bill by a 9-0 vote, with Sen. Brian Taniguchi (D, Manoa) expressing the only reservations. Given all that's being proposed by the committee, Taniguchi said he was concerned the numbers might not add up.

"I thought the governor's package at least had some rationale to it," he said.

Sen. Sam Slom (R, Aina Haina) applauded the attempt to keep the excise tax at 4 percent. "I would look at that as a very positive approach," he said.

Another controversial element of the task force package that has been revised is a proposal to raise the hotel-room tax from 6 percent to 7 percent, and to significantly reduce the counties' share of that tax. The increase would help create a $60 million dedicated fund for Hawaii tourism promotion, more than double what is spent now.

While Finance approved the tax increase and a dedicated promotion fund, it left unchanged the $97 million the counties get from the tax. To do that, the excise tax paid on hotel rooms would become part of the revenue-sharing formula.

The Ways and Means proposal on a hotel-room tax hike was to be decided today.

To help stimulate job growth, the main tax bill approved by the Senate committee requires that corporations benefiting from the tax cuts use some of those savings to provide assistance to emerging industries.

But Fukunaga and Baker acknowledged that such a condition can't be enforced.

"It's more of a request," Fukunaga said.

As one possible way to raise revenue, the Finance Committee approved a bill that would impose a yet-unspecified tax on nonprofit organizations and certain activities that have been exempted from the GET.

Hospitals and cemeteries would be among those that would lose the exemption, while charitable, religious and education institutions, such as Bishop Estate, still would be spared.

Several committee members blasted the measure.

"The sick and the dead would be taxed," said Rep. Gene Ward (R, Hahaione Valley).