Thursday, April 22, 1999

State of Hawaii

Excise-tax cut:
Legislators agree
but Cayetano wavers

By Mike Yuen


With the session in the stretch, lawmakers are poised to agree on what they believe will be a signature accomplishment: passage of a bill that would significantly reduce the "pyramiding," or serial imposition, of the 4 percent general excise tax on every stage of sales and production.

Small businesses have long complained that the repetitive nature of the excise tax means higher prices for both consumers and businesses.

But now Gov. Ben Cayetano, who made reduction of excise-tax pyramiding a key element in his economic revitalization package that business and labor backed last year, is worried that lawmakers will pass such a measure.

The state, which this year launched Cayetano's four-year program to reduce the personal income tax burden by $750 million, can't absorb additional revenue losses, Cayetano said yesterday. Although phased in over six years, the anti-pyramiding proposal will lead to an annual $150 million revenue loss for the state.

"If they want to reduce pyramiding, then they should be prepared to make hard decisions about restructuring (government), which at this particular point, I haven't seen them inclined to support," Cayetano said.

Cayetano, whose campaign promises included reducing pyramiding, did not say if he would veto an anti-pyramiding bill.

"The pyramiding is something we need to look at very, very closely because you can only cut so much, and I'm not sure that reducing the pyramiding is something that is really going to stimulate the economy," Cayetano said. "I used to feel that it was really important. I'm not sure today whether doing that outweighs the cost it would wreak on government services."

In a 1-hour meeting yesterday with Star-Bulletin editors, House leaders said they are trying to curb government spending.

But they are not getting much help from Cayetano, said House Majority Floor Leader Nobu Yonamine (D, Pearl City).

Yonamine branded Cayetano's administration as "a do-nothing administration" when it comes to trying to restructure government to a size that can be supported by the state's declining revenues.

Several times during his first term Cayetano was asked to reorganize or eliminate departments or to give lawmakers a ranking of government services so that they can have some guidance when making cuts, Yonamine said. But Cayetano couldn't.

House Speaker Calvin Say (D, Palolo) said attempts to eliminate even small agencies such as the Commission on the Status on Women and have its functions transferred elsewhere in government have failed because of opposition. "Every program has its advocates," Say said.

Part of the problem, he acknowledged, is the political culture at the state Capitol: "If you take care of my program, I'll take care of yours."

House Majority Leader Ed Case (D, Manoa) said it is obvious that state government needs to become more efficient and cost-effective in serving isle residents.

And perhaps the Senate may be on the right track in suggesting severance incentives, job placement and retraining as a way to reduce the state's unionized work force, Case said.

In the Senate, Ways and Means Co-Chairmen Carol Fukunaga (D, Makiki) and Andrew Levin (D, Volcano) appeared surprised that Cayetano was no longer spearheading the push for the reducing pyramiding.

"In our financial plan," Levin said, "we accommodate the reduction in the general excise tax because we recognize that business has identified that as the key provision to assist the economy getting back on its feet."

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