House panel
OKs tax reform

The measure would replace
the excise and personal income
taxes with a state sales tax

Slom raps bill to hike salaries

Legislature Directory

By Mike Yuen
Star-Bulletin

Hawaii's much-criticized tax system, blamed in large part for the state's economic malaise, would be dramatically reshaped under a bill that the House Economic Development Committee approved today.

The general excise tax -- which imposes a "pyramiding" surcharge at every level of production, distribution and sales, and which accounts for about one-third of all state tax revenues -- would be phased out, said Chairman Robert Herkes (D, Volcano). Replacing the excise tax, which adds a 4 percent charge on retail transactions and a 0.5 percent charge on wholesale transactions, would be a sales tax on goods and services, Herkes said. The rate of the proposed sales tax hasn't been specified.

Disappearing, too, would be the state's personal income tax.

"We would be going to a consumption-based tax and away from an earnings-based tax system," Herkes said.

The measure would also restructure state government by requiring certain departments to be self-supporting. They would include the departments of Business, Economic Development and Tourism; Commerce and Consumer Affairs; Taxation; and Transportation, all which would receive only a small or no allocation from the cash-strapped general fund, Herkes said.

"This bill is perhaps the single most sweeping approach to reforming our complex tax system, to helping business by eliminating pyramiding and to protecting the consumer from hidden taxes" he added.

Herkes conceded that the proposed transformation could mean short-term revenue losses, for which he did not have an estimate. It would be up to the House Finance Committee to figure out the financial implications of his panel's proposal and fine-tune the measure, he said.

He already has a sympathetic ear on Finance, Herkes said, because Rep. Nathan Suzuki (D, Moanalua Valley), a member of Economic Development, is also Finance's taxation subcommittee chairman. "Nathan's fully on board," Herkes said.

Majority Leader Ed Case (D, Manoa) confirmed that he and other key House leaders -- Speaker Calvin Say (D, Palolo), Speaker Emeritus Joe Souki (D, Wailuku), public works subcommittee Chairman Bob Nakasone (D, Kahului) and Suzuki -- were all members of a "discussion group" that helped to conceptualize the proposal before it was put into bill form last night.

But, warned Lowell Kalapa, president of the Tax Foundation of Hawaii, "If (lawmakers) don't cut the other side -- spending -- nothing is going to work. The big question is: Do they have the political will to cut spending? Everyone wants to cut taxes. That's the popular thing. But who is going to pay the piper?"

Sen. Carol Fukunaga (D, Makiki), Senate Ways and Means co-chairwoman, said it would be premature for her to comment on the House initiative. "We'll take a look at it when it arrives," she said.

The proposal to transform the tax system is one of six bills, all part of a tax reform package, that the House Economic Development panel moved to the Finance Committee.

The five other bills would:

Alleviate the excise tax's pyramiding effect on intermediary services at the wholesale level by gradually decreasing the tax during a four-period beginning Jan. 1, 2000, until it is 0.5 percent.

Cut by 50 percent the income tax rate on corporations, regulated investment companies, real estate investment trusts and franchises.

Waive the excise tax on direct, pass-through costs for employee-leasing companies.

Increase the 4 percent tax credit for capital goods, such as computers used by businesses and beds used by hotels, to 10 percent before lowering it in two steps to 4.5 percent. The rationale: encourage outside investment and spur isle businesses to become more competitive by investing in equipment and technology.

Exempt professional services done out of state, such as work by architects and engineers, from the excise tax, encouraging professional firms to locate in Hawaii. The bill also would impose a 4 percent tax on services performed in Hawaii by out-of-state firms.

Herkes said it would be up to House Finance to determine what the rate would be for the sales tax that would replace the excise tax and when the phase-in to the new tax system would start.

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Slom critical of bill
that would hike salaries
of various state officials

By Craig Gima
Star-Bulletin

A Republican state senator is criticizing a bill that would give pay raises to a variety of state officials who make between $65,683 and $85,302 annually.

Among those who would get raises are members of the Public Utilities Commission, stadium manager and legislative auditor.

Sen. Sam Slom said legislative auditor Marion Higa probably deserves a raise, but questions how some of the other state officials can justify a salary increase in tight economic times.

"You have the bold, the beautiful, the ugly, all in there and it's the ugly and the not so bold and beautiful that get the rewards," said Slom (R, Hawaii Kai).

Slom added that the bill is deceiving because it does not say how much of a pay raise is being considered and because it groups so many different jobs in one bill.

"No one's come forward and said, 'Gee we're losing PUC commissioners, we have to raise their salary,' " Slom said.

"The level of pay that they have plus the perks and benefits that they enjoy are far superior to what's going on in the private sector -- the people that have to support them.

"There may be some individuals and groups within that bill that are deserving of a pay increase, but they should be judged on their merits and it should be discussed openly and clearly."

The bill passed the Senate Labor Committee last week and must now have a hearing before the Ways and Means Committee, which would determine the amount of the pay raise.

Labor Chairman Bob Nakata (D, Kaneohe) said Senate leaders asked him to pass the bill, so he did.

"Maybe I didn't investigate it that closely, but we're positioning a bill that is going to have to go through the process," Nakata said.

When asked if he thought some of the officials deserved a raise, Nakata replied, "I don't know, I was just moving the vehicle (bill)."

No one submitted testimony against the bill when the Labor Committee held a hearing on it.

The Hawaii Government Employees Association, whose members are pushing the Legislature to fund raises, supported the measure.

In written testimony, the HGEA noted, "It has been over nine years since this group of government workers has received a salary adjustment. Such an action is not only well deserved but long overdue."

Higa noted that, in the nine-year period, her staff has had five pay raises totaling more than 19 percent.

The bill also would raise the salary of her deputy, and she said some staff salaries are close to or exceed what her deputy makes.

Nakata said he does not know who is behind the bill. It was introduced by Senate President Norman Mizuguchi (D, Aiea) "by request," which means that it was introduced on behalf of someone else. Mizuguchi was not available for comment.

The bill would raise salaries of:

Legislative auditor, Legislative Reference Bureau director and the state ombudsman, who make $85,302 a year, and their respective deputies, who make $72,886.

Chairman of the Hawaii Labor Relations Board, the chairman of the Public Utilities Commission and the chairman of the Labor and Industrial Relations Appeals Board, who make between $72,886 and $77,966, and the other members of the boards, who make 95 percent of the chairman's salary.

The chief negotiator for the state, who makes between $72,886 and $77,966.

The Aloha Stadium manager, who makes between $72,886 and $77,966, and the deputy manager, who makes $65,683.

ember 1946. The reason it's not on any map: It's now a part of Kisatchie National Park.