No reductions
in income tax for now,
Gov. Cayetano says

State tax revenues are not coming in
at the rate he expected

By Mike Yuen
Star-Bulletin

Acknowledging that tax revenues are not coming in as high as anticipated, Gov. Ben Cayetano said his push for additional reductions in the state personal income tax is essentially dead.

"It would be foolish to do it," Cayetano said yesterday. "But when we conceived the plan, revenues were going up."

Cayetano wanted to lower the personal income tax's highest bracket, now at 8.75 percent, to 8 percent in 2002. He had earlier proposed 7.25 percent.

The governor's readiness to jettison the proposal comes at a time when lawmakers are questioning the Cayetano administration's financial assumptions.

Yesterday afternoon, House leaders, including Speaker Calvin Say (D, Palolo) and Finance Chairman Dwight Takamine (D, Hilo), met behind closed doors with Budget Director Earl Anzai, Tax Director Ray Kamikawa and Seiji Naya, director of Business, Economic Development and Tourism, to discuss the state's revenue picture and the administration's spending plans and tax relief initiatives.

Anzai confirmed that even before the meeting House leaders had asked the administration to suggest cuts of at least 5 percent to the $6.5 billion general fund budget for the fiscal biennium that begins July 1.

For the first seven months of the fiscal year, tax revenues have grown 2.1 percent, or $14.2 million, over the same period in the previous fiscal year.

Cayetano had proposed that the personal income tax drop to 8.25 percent in 2001 if tax revenue growth hit 3.9 percent in fiscal 1999-2000. That would mean an additional $111 million would have to be collected beyond the more than $2.8 billion already projected.

The personal income tax would drop to 8 percent in 2002 if revenue growth hit 5.2 percent in fiscal 2000-01. That would mean an additional $152 million more than the nearly $2.9 billion already projected to be collected.

Unlike his Republican critics, who believe that the best economic stimulus can be achieved by reducing the state's 4 percent general excise tax, Cayetano has focused on the personal income tax. Most small-business operators file personal income tax returns rather than corporate income tax returns.

Cayetano said he is hesitant to cut the excise tax because an estimated 30 percent of that tax is "exported" to tourists.

Cayetano believes he can still provide tax relief. But he may suggest a proposed cut to the corporate income tax be scaled back, as well as a deduction for employers' costs for prepaid health insurance.