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Big state surplus
allows tax cuts

THE ISSUE Governor Lingle has proposed tax cuts made possible by a large revenue surplus.

HAWAII'S surging economy is resulting in tax revenues surpassing expectations, prompting Governor Lingle to propose badly needed tax cuts. Democratic legislators prefer directing the additional money to prison and education improvements. The expanded budget should be large enough to do both.

Lingle says the state ended the 2005 fiscal year $486 million in the black, nearly quadruple the surplus that had been expected. She proposes raising the standard income tax deduction from the current $1,500 to $2,500 for singles and from $1,900 to $5,000 for couples filing joint returns.

She also wants to provide breaks to "those who are earning the least and need help the most" by providing tax credits to offset taxes on food, medical services and nonprescription drugs and expenditures on long-term care insurance.

The governor proposed raising the deduction for singles to $2,500 and married couples to $4,200 earlier this year, costing the state $20 million in lost revenue. Her new proposal would be more expensive, but not by much, considering the budget surplus.

The tax credits outlined by Lingle would reach many of the working poor who will be particularly burdened by the increase in the general excise tax to support mass transit. Another method would be to raise the threshold at which families begin paying income taxes. Lingle proposed earlier this year to increase that threshold from $11,600 to $13,900.

A more effective strategy was suggested last year by Bob Zahradnik of the Washington-based Center on Budget and Policy Priorities and supported in a column by state Rep. Brian Schatz on the opposite page. They propose that Hawaii join at least 17 other states that provide earned income tax credits, based on a percentage of federal credits.

Under the system, refunds are provided to families if the credit exceeds their income tax liability. A formula based on 20 percent of the federal credits would cost about $20 million, according to Zahradnik.

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Flawed security law
hinders responders

THE ISSUE An anti-terrorism tax law inadvertently hinders emergency refueling of helicopters.

A new tax law aimed at discouraging terrorists from fueling gasoline-tank trucks at airports is hampering the Honolulu Fire Department's ability to respond to emergencies. The law fails to distinguish between the Timothy McVeighs of the world and the first responders, and should be ignored until it is corrected.

The law is enforced by the Internal Revenue Service, which taxes fuel at a lower rate inside an airport for use by outgoing aircraft. Fuel cannot be taxed at that lower rate and then hauled away from the airport by truck, even if the fuel is to be used for aviation.

That means that the Fire Department's helicopters must be flown from an emergency scene all the way to Honolulu Airport to refuel at the lower rate and resume their work. The department can no longer economically use its truck to refuel helicopters at the scene. In the past, half the fueling of its helicopters has been done at the emergency scene.

Linda Smith, Governor Lingle's senior policy adviser, is asking the IRS for a waiver from the law. "The concern is that this hinders our ability to fight brush fires on an ongoing basis when you have to go back to the airport to refuel," she told the Star-Bulletin's Rod Antone.

"We tried to get an exemption as emergency vehicles, but we found out the IRS doesn't give exemptions," said HPD Chief Attilio Leonardi.

Well, not quite. Senator Inouye has gained the IRS's agreement to allow one refill of the Fire Department's truck while giving Congress time to fix the law. That is an exemption, and more should be forthcoming while Congress plods toward fixing the law.

If not, Leonardi explains, "We might have to leave that person sitting on a ridge while we go back to the airport to refuel and come back an hour later."

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