Session extended
until Monday

Cayetano offers a 'bold' plan
to cut personal income taxes
without increasing the GET

By Mike Yuen
Star-Bulletin

Gov. Ben Cayetano has extended the legislative session to Monday to complete its work on budget cuts, tax relief, privatization and other key issues.

But he has also tossed to legislative leaders a "bold" plan to slash personal income tax rates that doesn't require an increase in the general excise tax. It was the Cayetano-backed House proposal to raise the excise tax that fanned a fierce debate and led to the Senate's ultimately successful demand that the initiative be shelved.

His new tax reform proposal, Cayetano said last night, should have a full discussion, even if that means additional extensions of the session. "There's no magic to time," Cayetano insisted.

But Senate President Norman Mizuguchi (D, Aiea) seemed reluctant to have the Legislature, which convened Jan. 21, remain in session beyond Monday.

He believes lawmakers, who were scheduled to finish their work two days ago before there was a first extension, can reach agreements tomorrow on bills still in conference negotiations and have final floor votes on Monday.

"It's just a matter of whether or not we can use some of his ideas within the given time -- the extension," Mizuguchi said. "But I think at this point with the general excise tax increase off the table, there will be a willingness to see how we can give some personal income tax breaks and balance the budget. That's our key objective."

Under Cayetano's new plan, isle taxpayers would see their income taxes cut 15 percent next year. After three years, taxes would be 25 percent lower. The plan would save taxpayers $190 million in the first year and more than $200 million in subsequent years, Cayetano said.

Lower-income taxpayers would get the full 25 percent reduction in their taxes in the first year and other taxpayers would see tax rates gradually decline over three years, he added.

Single taxpayers earning $21,000 or more and married couples filing jointly on incomes of $41,000 or more are now assessed the highest tax rate, 10 percent. Cayetano would slash their tax rate to to 7.5 percent on Jan. 1, 1999.

For higher-income families, their tax rate would drop to 8.5 percent in the first year, 8.0 percent in the second year and 7.5 percent in the third year.

"If we could drop to 8.0 percent in the first year, that would be even better, but we don't have the (excise tax increase) so we can't do that," Cayetano said.

Cayetano's new plan also calls for reducing the state's corporate tax -- but not the franchise tax -- by 30 percent.

The Cayetano-supported House plan that was jettisoned was aimed at reducing income tax rates as much as 35 percent over three years. It raised the excise tax to 4.5 percent from 4.0 percent so that tourists and other nonresidents would help pay for the tax break.

The Senate plan did not have an excise tax increase; it offered more modest tax breaks and deeper cuts in government programs than what the House proposed.

Cayetano said his new proposal would signal that the state is serious about revitalizing its economy and luring new businesses.

"The tax cut will catch people's attention -- that we're doing something. We need to do something fairly big," Cayetano said. "It doesn't have to be my tax plan. If they can find another way to bring about a cut like that, that's what we need."

Senate Ways and Means Co-Chairwoman Rosalyn Baker (D, Wailuku) and House Finance Chairman Calvin Say (D, Palolo) said they have yet to receive a written copy of Cayetano's new proposal.

Meanwhile, House and Senate budget negotiators, who have been conducting most of their talks in secret, met yesterday in public for the first time since Friday night.

The meeting ended with no agreement on 11 bills that involve key issues such as tax reform, the hotel room tax, tax credits and fee increases.

Say chastised his Senate counterparts for wanting to offer numerous tax credits and exemptions that he feared would cost the state tens of millions of dollars in revenues.

"A lot of it may be false hope," Say said.

It may require an excise tax increase to pay for what the Senate wants, Say added. Although Cayetano and House Speaker Joe Souki (D, Wailuku) have conceded that an excise tax increase is off the negotiating table, Say said he brought it up to "educate" the public about the state's fiscal condition and the options that are available.

The Senate, Baker said, sees the tax breaks for such things as technology training and lifetime learning as long-term ways to reinvigorate the isle economy.

After the House finished its floor session last night, Say and House Finance Vice Chairwoman Bertha Kawakami (D, Hanapepe) and Baker and her fellow Senate money Co-Chairwoman, Sen. Carol Fukunaga (D, Makiki), resumed their secret budget negotiations. The talks lasted into today's early hours.