Cayetano floats new
approach to tax hike

The idea is to have the
excise tax increase be temporary,
for three to five years only

By Mike Yuen
Star-Bulletin

If there is an increase in the general excise tax, it would be temporary - perhaps for three to five years.

That's an idea Gov. Ben Cayetano is floating to make an excise tax increase - the most controversial element of his economic revitalization plan - more palatable.

But Cayetano's proposal is drawing a largely negative reaction.

Leaders of Republicans in the House and Senate and the Senate's Democratic factions are refusing to embrace Cayetano's suggestion.

The House's Democratic leadership, which managed to pass a measure raising the excise tax from 4 percent to 4.5 percent by three votes, is giving the initiative a warmer reception. But House Speaker Joe Souki (D, Wailuku) declined to say if he would push it.

The most enthusiastic response came from Gary Rodrigues, state director of the United Public Workers union who sat on Cayetano's economic revitalization task force.

Cayetano has "an excellent idea" to include a provision to make the excise-tax increase "drop dead" after three to five years, Rodrigues said.

"I think," Cayetano said, "that for the public out there, it'll tell them that we need to do this so that when things get better, we do have a commitment to lower taxes."

Cayetano, through his task force, is pushing tax relief for isle taxpayers by proposing personal income tax cuts of up to 35 percent. The excise tax increase is intended to help offset the cost of the tax breaks by having tourists and nonresidents pick up an estimated $80 million of the tab through the rise in the general excise tax. The task force proposed raising the excise tax to 5.35 percent.

Sen. Sam Slom (R, Kalama Valley), who fears an excise tax increase could force a number of struggling small businesses to shut down, said: "Personally, I would rather see a drop-dead clause on politicians who continue to raise our taxes. I would ask the governor to name one tax that was later removed."

House minority leader Quentin Kawananakoa (R, Nuuanu) added that while Cayetano may be promising a sunset provision for any increase, once people get used to the higher tax, there will be little incentive to remove the increase. "This is just to placate the public," Kawananakoa said.

Senate President Norman Mizuguchi (D, Aiea) expressed fears that making the tax increase temporary could further hurt the economy. "It may be politically expedient, but there's also a downside in terms of purchasing power and decisions to purchase big-ticket items," Mizuguchi said.

"History has proven that consumers will wait until the drop-dead provision is over and then make big-ticket purchases such as refrigerators and automobiles," he added.

Senate dissident leader Randy Iwase (D, Mililani) said he believes his coalition of rebel Democrats and the chamber's two Republicans group has put together a package that would grant meaningful tax cuts without having to raise the excise tax. So there's no need to even have a tax increase, much less one tied to a drop-dead provision, Iwase insisted.

Souki said he has had casual conversations with Cayetano about making the excise tax increase temporary. "But no decisions have been made on the House level," Souki stressed.

The idea of attaching a drop-dead provision to an excise tax increase is more likely to occur when the House and Senate wrestle with the tax issue during conference negotiations, Souki added.

House Finance Chairman Calvin Say (D, Palolo) said he might go further than what Cayetano is suggesting if the sunset provision doesn't take away the tax breaks for isle residents and if the economy is robust in three to five years. He might propose a reduction in the excise tax, Say said.

Rodrigues said having a drop-dead provision should give lawmakers "more courage" to pass a tax-increase measure in an election year.

"These people here are all brave souls, otherwise they wouldn't run for office," Rodrigues said.

"But it's hard to explain to a million people, 'This is why, this is why.' If they could do it to each voter, they would convince them. But it's really hard to do."