Residents would pay less
By Rob Perez
in taxes and tourists more,
under the proposal
Star-BulletinHawaii taxpayers will pay less, tourists will pay more and an overhauled regulatory and education system will spark job growth and boost the state's economic competitiveness. In a nutshell, that's the thrust behind the dramatic proposals unveiled yesterday by the Economic Revitalization Task Force, highlighted by the biggest tax cut in state history.
But even as the package was being widely lauded for its depth and boldness, the details -- or lack thereof -- raised many questions from those wondering if the state was going too far or risking too much in trying to jump-start the economy.
"Cutting taxes is always nice, but not by 30 or 40 percent," said Astrid Monson of the League of Women Voters. "How are we going to run programs like the Department of Health, welfare, the university and things like that?"
Others questioned the wisdom of taxing visitors more at a time when the state's No. 1 industry is struggling and Hawaii faces stiff competition from other tourist destinations.
"We're having a difficult time right now because costs here are so high," said Republican state Sen. Sam Slom. "Now the message we're sending to tourists is we want to charge you even more."
In what was billed as a historic meeting of the minds, the 27-member task force, including some of the state's top business, political and labor leaders, recommended a sweeping package that includes a 40 percent cut in personal income taxes over three years, a 50 percent cut in corporate income taxes and an increase in the general excise and hotel-room taxes.
The panel's economic game plan also calls for a dedicated source of tourism funding at more than twice current levels and an overhaul of certain government functions, including contracting services to the private sector if they can be delivered more effectively and economically.
To improve the education system and produce better-trained workers, the panel recommended replacing the statewide elected school board with four county boards appointed by the governor. It also proposed making the University of Hawaii more autonomous by converting UH into a quasi-public corporation.
The proposals still must be sold to the Legislature and, in some instances, voters through constitutional amendments.
Ken Sakamoto, Star-Bulletin
Tom Leppert, a task force facilitator; Senate President
Norman Mizuguchi; House Speaker Joe Souki; Gov. Ben Cayetano
and bank executive Lawrence Johnson (front row, left to right)
are among the members on the Economic Revitalization task force.
But considering the package was unanimously endorsed by the task force, including Gov. Ben Cayetano, Senate President Norman Mizuguchi and House Speaker Joe Souki, the major elements stand a good chance of surviving the Democrat-dominated Legislature when the session begins in January, lawmakers said.Even Republicans were applauding yesterday.
"I'm really encouraged," said GOP Rep. Cynthia Thielen. "I think it offers some strong solutions. The problem is going to be trying to get it out of the quicksand of the Legislature."
A key reason for the applause is the proposed tax breaks for island residents. The task force wants to get more money into people's pockets so they can spend more and boost the economy.
The proposal calls for cutting Hawaii's top personal income tax rate -- now one of the nation's highest -- from 10 percent to 7 percent the first year and to 6 percent after three years. Other rates would fall proportionately.
The savings to taxpayers would be $320 million in the first two years and $420 million subsequently, according to the task force.
In addition, the group recommended that corporate taxes be cut in half, saving companies $40 million annually, and that the pyramiding of the excise tax -- basically a tax on a tax -- be reduced, saving consumers and businesses $158 million each year.
At the same time, however, the panel suggested bumping the 4 percent excise tax to 5.35 percent to offset some of the lost revenue, essentially shifting more of the overall tax burden to tourists.
That idea already is drawing criticism from businesses and those who say it will place a greater burden on low-income residents, who typically pay a greater percentage of their budgets on consumption taxes.
"I think raising the general excise tax will do a great disservice to the poor of our community," said Lowell Kalapa, director of the Tax Foundation of Hawaii.
But with proposed tax credits for low-income residents, all taxpayers will end up paying less overall, task force members said.
"The numbers don't lie," Cayetano told reporters. "We will be able to demonstrate there will be a net gain for every taxpayer."
For a family of four with income of about $40,000, the changes would mean $340 less in taxes annually in the first two years and $634 less per year thereafter, according to task force data.
Hawaii, now portrayed as a tax hell by national publications, would have one of the lowest personal income tax rates and consumption taxes in the country, a big plus for luring businesses to the islands, Cayetano said.
But Cayetano and others acknowledged that the changes will create short-term pains.
The tax changes will lessen state revenue by roughly $400 million over the first three years, though the hope by the task force is that the overall plan would stimulate economic growth, thereby softening the blow and eventually turning the economy around.
Cayetano said the reduced revenue may require a reduction of government services but he didn't think layoffs would be necessary. He said the government can adjust by not filling positions that open up and phasing out certain programs, though he didn't specify which ones.
It's that kind of talk that worries people.
"They came up with how to improve the state's economy in a vacuum and nobody was asking who is going to get hurt," said Rep. Alexander Santiago, chairman of the House Health Committee.
Task force members, however, said not taking such bold measures ultimately would cause more suffering for a state reeling from seven years of recession.
"We cannot avoid pain," said Tom Leppert, a facilitator for the task force. "We can only delay it. And the more we delay, the more painful it will be."
That may apply particularly to county governments.
Under the task force proposal, they would lose a big chunk -- one estimate is roughly $40 million annually -- of the hotel-room tax so the state could fund tourism marketing.
"Everybody's worried about (losing) revenue," said Millie Wellington, spokeswoman for Kauai Mayor Maryanne W. Kusaka.
And even though the counties will play a critical role in eliminating duplication of services between the two levels of government, they weren't represented on the task force.
"We wanted to keep politics out of it," Cayetano said when asked about the counties' absence. Cayetano, Mizuguchi and Souki appointed the members.
The task force met behind closed doors over three days to hash out the proposals, many of which were debated by five working groups during more than 30 public meetings.
The most contentious of the private discussions centered around reducing government, task force members said. One unsuccessful proposal called for a 10 percent workforce reduction.
Another controversial topic that received little attention in the group's final recommendations: how to resolve contentious native Hawaiian issues that ultimately will impact the economy.
Many of the ideas that survived the closed-door sessions aren't new. They have been proposed in previous years but never survived the Legislature.
This time, however, the unprecedented show of support by government, business and labor, along with a sense of urgency to act, will make the difference, task force members said. "We've had our wake-up call," said bank executive Lawrence Johnson.
Even union executive and task force member Gary Rodrigues, a harsh critic of privatization efforts, supported the package.
"We can deal with everything in this," he said.
Task force members now plan to hold town meetings around the state to sell the public on the plan.
"We'll get community input, we'll sharpen the proposals if necessary," Mizuguchi said.
Some already are sold.
"If the whole thing goes through as a package, I think the benefits will outweigh the negatives," said Cherylle Morrow, a Kailua small businesswoman.
Star-Bulletin reporter Peter Wagner
contributed to this story.Mixed bag for tourism
Read the full text of the task force
recommendations in our Specials section.
