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Calls for tax hike piling on reluctant lawmakers


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POSTED: Sunday, November 08, 2009

As the state's budget continues its downward spiral, pressure is mounting for the state Legislature next year to raise taxes to pay teachers and other public employees.

But state leaders fear that even a 1 percentage point increase in the general excise tax would not help, and they doubt a tax increase would survive a veto by Gov. Linda Lingle.

Last week, the state's largest union, the Hawaii Government Employees Association, told its members that a tax increase was the best way to solve the state's financial problems.

Saying that the fiscal dilemma extends past the current public school furloughs, the HGEA's Internet message reminded members that last year it lobbied for a tax increase and now the Legislature must act.

“;A broader solution to the revenue shortfall is needed to mitigate the impact of furloughs and layoffs in all departments, including the Department of Education,”; the HGEA memo said, adding that it didn't approve of tapping state special funds.

Some legislative leaders are trying to douse calls for a tax increase, while still acknowledging that the state has run out of money.

                       
GET ... THE FACTS
        About the general excise tax:
        » Hawaii first created the general excise tax in 1935 to deal with a Territory of Hawaii budget deficit of $5 million. The rate was 1.25 percent for most transactions.
        » It was increased in 1945 and 1947 and climbed to 3.5 percent in 1957.
        » By 1965, the GET was 4 percent, where it remains for all counties but Honolulu.
        » In 2005, the GET was raised to 4.5 percent for Oahu transactions only, with the extra money going to fund Honolulu's transit line.

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Veteran House Speaker Calvin Say called the state's tax collections “;really terrible, horrible and hemorrhaging.”;

The Lingle administration's latest budget plan circulated to lawmakers shows a need for about $1 billion by fiscal 2013. And that's assuming that all state labor contracts are settled, the unpaid furlough days remain, and the state is able to refinance state bonds.

“;I feel like we are insolvent because I'm chasing $1 billion again,”; Say said.

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Sen. Donna Mercado Kim, chairwoman of the Ways and Means Committee, noted that the Senate last year passed a 1 percentage point GET increase, but added so many exemptions to make it politically palatable that it would raise only about $190 million a year. The proposal did not get through House last session, but is still an option for the 2010 session, which starts in January. A 1 percentage point increase would bring the tax to 5 percent on the neighbor islands and 5.5 percent on Oahu.

“;We are chasing a $1 billion deficit. ... The GET is not the panacea that everybody says it is and I don't know if there is support for such a drastic measure that would only raise $190 million,”; Kim said in an interview.

Say is cautiously rejecting any GET increase next year. “;I don't want to raise taxes because it will be so counterproductive. ... People may not buy anything but the basics,”; he said.

Lowell Kalapa, president of the Hawaii Tax Foundation, agrees, adding that “;if prices go up, people don't buy and the merchant has product it cannot sell.”;

“;If your GET goes up, the price point goes up and you sell less and then you have to raise prices again because you don't have the volume,”; Kalapa warned.

Previous state tax review commissions have called the GET the core source for funding state government, saying Hawaii “;will continue to rely on the GET for most of governmental needs.”;

Senate President Colleen Hanabusa said the state's economic picture is too complex to respond to calls for a simple end to the public school and state government furloughs.

She said passing a GET increase would be an admission that the state was in serious trouble.

“;If we are poised to pass it (a GET increase) on final reading and we have exhausted all other plans—I think we would be in bad shape,”; Hanabusa said in an interview.

Hanabusa warned, however, that the state is running out of answers, noting that the public is already complaining about the furloughs.

“;I think we are at a point where I don't know what else can be cut out of state services. Just look at the outcry now,”; Hanabusa said.

Say suggested that next year the Legislature may have to restructure taxes, including taking the hotel room tax back from the counties and perhaps also taking Honolulu's tax money collected for rail transit.

Noting that the four counties decided not to furlough workers this year and also continued to pay a larger percentage of the county workers' medical insurance, Say said the counties should have calculated better.

“;Some of the legislators from Oahu are very disturbed because the counties didn't implement the furloughs. Why didn't they spread the pain out?”; Say said.