Value of economic
package questioned

Outside political circles,
few expect results

By Rob Perez
Star-Bulletin

The spin cycle is on high, and we're not talking washing machines here.

We're talking politics.

Gov. Ben Cayetano, House Speaker Joe Souki and other members of the governor's economic task force held a news conference yesterday to laud the action the Democratic-controlled Legislature took to try to revitalize the economy.

Cayetano and Souki said lawmakers passed about 80 percent of the task force's major recommendations, calling such success a victory for the people and the economy. That's a campaign message Cayetano and the other Democrats up for re-election this year are likely to repeat often.

"I think any time you can pass 10 out of 13 proposals and achieve the basic objectives of the strategic plan that we put together, I think that's really very, very successful," Cayetano said.

Added Souki: "In accomplishing 80 percent of the plan, we have basically done the people's work."

But what Cayetano and Souki cast as a success is seen quite differently by others -- even among members of the task force.

Consider what member Stanley Hong, head of the Chamber of Commerce, told KITV on Tuesday: "There's nothing coming out of this Legislature that will stimulate business, and I thought that was the main purpose of the task force and this Legislature."

And economists and tax experts have said the tax-reform package will do little to stimulate the economy and attract outside investors.

Cayetano acknowledged that more must be done, and he specifically mentioned reducing corporate tax rates and making more cuts in personal income taxes as top priorities for next year's legislative session.

He also took issue with the Star-Bulletin's coverage. "You can look at the glass as being half-full or half-empty. And I wish the Star-Bulletin would start looking at it as being half-full because then I think that we can raise the level of confidence that we need in this community to get people to spend money again."

While Cayetano can boast that 80 percent of the task force proposals were passed, some key ones were killed or substantially changed, bearing little resemblance to what the panel originally recommended.

Take the tax-reform bill.

The task force originally called for a 40 percent across-the-board reduction in personal income tax rates over three years, a 50 percent cut in corporate income taxes and a nearly 34 percent increase in the general excise tax.

It also advocated reducing the so-called pyramiding effect of the excise tax and exempting exported services from the GET.

After the Legislature finished with the plan, the personal income tax cut had been pared significantly: the top rate drops about 17 percent over four years, with middle- and lower-income households getting bigger breaks.

Paul Brewbaker, chief economist with Bank of Hawaii and a supporter of the original task force proposals, told the Associated Press that the income tax package "will not have any significant impact." Not only is the reduction "minuscule," but phasing it in over four years does the opposite of the intent of attracting new invest by causing potential investors "to wait four years and see if it sticks," he said.

Corporate tax relief was killed, as was the excise tax hike, the pyramiding provision and the exemption of exported services.

"We listened to the people," Cayetano said. "If you don't have the support in the end, you need to make some compromises, and this is a darn good compromise. It's going to help the people of this state."

Another key task force measure killed: eliminating the state Land Use Commission.

Republicans were quick withtheir own spin. "To say that 80 percent of the (task force) proposals actually passed is just enhanced wrapping on a very empty package," said Rep. Chris Halford, a Maui Republican. "There is actually very little of the economic stimulation proposals that we had all hoped for."