House and Senate leaders agree
to drop the plan, and work on the
budget may finish tonight

By Mike Yuen
Star-Bulletin

The death of a proposed general excise tax increase means taxpayers won't see substantial cuts in their income tax rates, House Speaker Joe Souki (D, Wailuku) said last night.

Backed by Gov. Ben Cayetano, the House had voted to increase the 4 percent excise tax to 4.5 percent, to help pay for reductions as high as 35 percent in personal income tax rates. However, the measure had passed by only a five-vote margin.

Meanwhile, the factionalized Senate was unanimously against an excise tax increase. The Senate offered less income tax relief but deeper cuts in state spending than the House.

"I sincerely felt and still do that the excise tax (increase) would benefit the people of Hawaii," Souki said. "At some point in time, it's going to have to come."

He also warned that if tax reform isn't significant enough to lure new businesses, Hawaii's economy will remain sickly. "Unless things turn around dramatically, we're going to be faced with the same problem that we have now.

"It's not going to get any better. It might get worse."

When the Legislature begins crafting its next biennium budget next year, it will be facing a projected revenue shortfall of $400 million, Souki said.

At the start of this session, state Budget Director Earl Anzai had warned that unless corrective action was taken, the state's general fund was projected to be nearly $322 million in the red on June 30, 2000.

Both Souki and Senate President Norman Mizuguchi (D, Aiea) last night confirmed the death of the excise tax increase.

When House and Senate conferees complete their work on the state budget, the House will formally drop its insistence on raising the excise tax to 4.5 percent, Mizuguchi said.

That development means work on the supplemental budget for the current fiscal biennium and other fiscal bills could be finished as early as tonight, said Souki and Mizuguchi.

If so, the Legislature could adjourn Friday, since the Hawaii Constitution requires bills to be in their final form 48 hours before final action can be taken.

The Legislature had been scheduled to adjourn yesterday, but Cayetano extended the session for one day. To adjourn Friday would require another extension.

The fierce debate over an excise tax increase was in large part responsible for the overtime.

Souki theorized that his side didn't do a good job in educating the public about the benefits of the House tax relief plan, which offered a net decrease in the tax burden, its proponents stressed.

"It's an education process. Maybe we came a little bit too fast this time," Souki said.

Shortly after the House finished last night, House Finance Chairman Calvin Say (D, Palolo) and Vice Chairwoman Bertha Kawakami (D, Hanapepe) resumed their secret budget talks with Senate Ways and Means Co-Chairwomen Rosalyn Baker (D, Lahaina) and Carol Fukunaga (D, Makiki).

Their deliberations continued early this morning.

Mizuguchi said once the budget is done, the House's proposed excise tax increase will be pushed off the bargaining table, and conferees will then decide what kind of personal income tax cut can be given.