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Cut taxes, raise them or just hold the fiscal line? That's the question Democrats are debating at the Legislature this week. Democrats waver:
Tax cuts or tax hikes?By Richard Borreca
Star-BulletinOnly two months ago, legislators and Gov. Ben Cayetano eyed a rising state treasury with plans to spend, spend and spend.
There were double-digit pay raises for state workers, plans to build a medical school and to buy loads of computers for public schools, and more tax cuts.
The excitement was caused by a Council on Revenues forecast. After years of gloom, the council predicted that tax collections would grow 6 percent this year and nearly as much next year.
Republicans called for cuts in the general excise tax so food and medical services would not be taxed.
But Tax Director Marie Okamura said cutting the tax on food alone would cost the state almost $133 million.
Meanwhile, Democrats in the Senate are preparing an unspecified tax increase.
Quietly, the Senate Health and Human Services Committee, chaired by Sen. David Matsuura (D, Hilo), on Monday took a bill about tax cuts for care homes and changed it to raise the excise tax an unspecified amount and then give some tax rebates for food and medical services.
"They gutted it and used it as a vehicle to raise the GET (general excise tax)," said Sen. Carol Fukunaga (D, Makiki), who along with Sen. Bob Hogue (R, Kaneohe) voted against it.
"I thought we just went through four years of cutting spending and trying to reduce taxes," she said. "This just doesn't make sense."
Sen. Brian Taniguchi (D, Manoa-McCully), chairman of the Ways and Means Committee, said his fellow Senate Democrats plan a meeting today to map a policy and plan on taxes.
Earlier this week, he said he wasn't sure if the Democrats want to cut taxes, raise taxes or just hold the fiscal line.
"There is no consensus yet," he said.
His original plan was to budget enough money to raise the pay for state workers, ranging from teachers and university professors to prison guards and airport firefighters.
Then Gov. Ben Cayetano's budget hit. It called for spending 11 percent more than last year -- and it didn't include pay raises.
Finally, the state is under a federal court order to spend millions more for special education students. Estimates on how much more range from $150 million to more than $350 million.
Taniguchi called Cayetano's budget "reasonable," adding that the Felix consent decree costs can not be cut and, besides, dropping Felix wouldn't put enough slack in the budget to pay for generous public employee pay raises.
That speculation doesn't carry over to the state House, where Democrats are thinking not about tax increases, but about more tax cuts.
House Speaker Calvin Say discounted the GOP proposal for just dropping the tax on food and medical services, but warms to the idea of giving local residents a credit for taxes paid on food and medical services.
"We should try to take care of local residents," Say said.
The House position on Felix and the pay raises is also different. Say doubted that all the millions going to pay for special education is actually going to the students. He thinks a better job can be done with less.
"I can't see us pouring in more money," he said. "It is a little ridiculous."
If Say doesn't want to spend as much as the federal courts ordered for special education, he is also against starting to hand out pay raises.
Instead, Say wants all the unions to reach agreement and then tally the cost along with everything else.
The third element in all the budget and tax speculation is Cayetano, who said his phased-in cuts in the income tax would lower the top rate by a percentage point -- to 7.25 percent -- in 2007.
Those small decreases should hamper the state's ability to pay for all the spending planned.
But, he warned, the state can't afford the Legislature's tax cuts nor would he tolerate a tax increase.
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