Increasing excise tax would only compound financial misery


POSTED: Wednesday, September 02, 2009

Recent state layoff announcements and the upcoming binding arbitration between the state and unions bring louder cries for an increase in the general excise tax. The message is that increasing the excise tax would cover the current $786 million state budget deficit and be a “;shared sacrifice”; and “;fair”; to everyone. At best that is a cruel joke and, at worst, an outright lie.

Those pushing for a tax increase are deliberately confusing an “;excise tax”; with a “;sales tax.”; The two taxes are fundamentally different. A sales tax is a one-time percentage of the price of the item you just bought. An excise tax is a percentage charged on an item each time it changes hands from producer to consumer, and everyone in between.

An increased excise tax is not “;fair”; because it gets charged over and over again. “;Fair”; is one person tackling you on a football field. An increase to the excise tax is like four or five more guys piling on you after you got tackled. And that's exactly what it will feel like when and if a tax increase occurs.

Take that carton of eggs you just bought as an example. A “;sales tax”; is only paid, let's say, 4 percent of the total price at the checkout line. An “;excise tax”; of 4 percent starts with the farmer. The shipping company that transports the eggs here adds its 4 percent. The trucking company that takes the eggs from the harbor to the store adds its 4 percent. So at the checkout counter, the carton of eggs you just bought includes the 4 percent separately charged by the farmer, shipper, trucker and store.

Right now, union bosses and politicians are peddling a 1 percent increase in the excise tax as the budget solution. The Tax Department calculated that a 1 percent excise tax increase will raise only $550 million. In order to make up the current state deficit of $786 million, without any layoffs, pay reductions or raiding any other funds, the real increase has to be 1.5 percent. To Oahu residents that means paying a total excise tax of 6 percent, and 5.5 percent for the rest of us.

People are suffering on every island and in each community because of this economy. The anxiety level and fear among state workers and in the private sector is real. People are worried not just about the future but about the lack of a next paycheck. And the best union bosses and lawmakers can do is try to convince us that paying higher taxes is “;fair.”;

Explain to anyone on a fixed income, such as retirees, senior citizens and the disabled, how a 6 percent excise tax, compounded each time it passes through someone's hands, for everything they buy, is “;fair”;? Show us the commercial of how a spiraling tax increase is a “;shared sacrifice”; to families who had someone laid off or had their hours cut back. Tell small business owners trying to make payroll how any tax increase that drives up their prices will be “;fair”; to them or their customers.

An excise tax increase is not “;fair”; to anyone. Lawmakers pocketing a 36 percent salary raise since January 2009 is not “;fair.”; Lawmakers rejecting the governor's three different financial plans to avoid layoffs and tax hikes is not “;fair.”; And having to pay the salaries of politicians who lack vision, common sense and think of taxpayers as bottomless wells is not “;fair.”;

Ted H. S. Hong is a Hilo attorney and former state chief labor negotiator.