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Saturday, December 16, 2000

State of Hawaii

wants to cut
income tax

Besides reducing the top rate,
his proposal will include
adjustments to help lower-
and middle-income families

By Bruce Dunford
Associated Press

Gov. Ben Cayetano will propose a personal income tax cut to the 2001 state Legislature, but it would not show up in paychecks for several years.

The income tax cuts approved in 1998 will take the top rate down to 8.5 percent in 2003, and Cayetano said yesterday he wants to drop it another percentage point.

Cayetano said he will propose a two-phase cut of the top income tax rate over two years, taking it down to 7.5 percent by 2005.

Before the 1998 tax cuts were approved, the top rate was 10 percent.

Besides reducing the top rate, Cayetano said his proposal will include adjustments within the tax structure to benefit lower- and middle-income families.

The governor said it would help stimulate the state's economy as did the rate reductions already under way.

The matter came up when Cayetano was asked by neighbor island newspaper editors to respond to the traditional proposal expected from House Republicans for a state general excise tax exemption on grocery food and rents.

Republican Minority Leader Galen Fox, R-Waikiki-Ala Wai, said that would benefit Hawaii's lower-income families and help stimulate the economy.

The excise tax is regressive because it adds the burden to the poor, while an income tax rate cut would be of greater benefit to richer taxpayers, Fox said yesterday.

The excise tax exemption on food and rent would leave more money in the economy and would help Hawaii's lower-income families, he said.

Cayetano disagreed

Because food and rent prices are based on market competition, the elimination of the excise tax would not change the price the consumer pays, Cayetano said.

"These guys in the supermarkets, they charge what the market will bear in competition. Eliminate the 4 percent (tax) from the price, and it becomes profit for them," he said.

"You charge what the market will bear. That's capitalism, and the Republicans should know a lot about that," Cayetano said.

The cut in the personal income tax, however, leaves the money with the taxpayer, he said.

"The way I look at it, that kind of a tax cut is a pay raise for everyone," he said.

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