need prognosis
to support tax cuts


Some states are worried that President Bush's proposal to eliminate taxes on corporate dividends will lead to lower state revenues.

PRESIDENT Bush is allowed to speculate optimistically about the effect of his proposed elimination of taxes on corporate dividends, the centerpiece of his "jobs and growth" program. Governor Lingle lacks that privilege because she and her counterparts in other states must deal with legislatures that are required by state constitutions to approve balanced budgets. What critics call "trickle-down" economics can be applied safely only to already healthy state economies.

White House spokesman Ari Fleischer has stopped calling the Bush proposal a "stimulus," acknowledging that the dividend tax elimination instead is "a chance to do something fundamentally good for long-term growth." Of the $670 billion in tax cuts proposed in the program, less than $100 billion would be for the current calendar year.

Citizens for Tax Justice, a liberal research group, calculated that nearly half the benefits from the program would go to the wealthiest 10 percent of taxpayers. The wealthiest 1 percent, those earning an average of $1 million a year, would have tax savings of about $32,000. The conservative accounting firm of Deloitte & Touche agrees with that assessment.

The plan could do sizable damage to states, most of which tie their income tax codes to the federal tax code. Missouri Democratic Gov. Bob Holden says repeal of the federal dividend tax could cost his state $95 million during the first fiscal year. Even without the repeal, two-thirds of states face declining revenues and more than half face expenditures exceeding their fiscal year 2003 budgets, according to the National Conference of State Legislatures.

Hawaii's proposed budget prepared by the administration of Ben Cayetano has a shortfall of $160 million, and that includes using $187 million from the Hawaii Hurricane Relief Fund, which Lingle says she won't touch. That means a budget shortfall of $347 million -- and the legislatures conference includes Hawaii among only 10 states reporting "a stable or economic outlook." Hawaii was the only state to cut taxes by more than 1 percent last year.

During last year's campaign, Lingle proposed tax cuts that Cayetano's tax director estimated would cost the state more than $100 million a year in revenue and force most state departments to cut spending by 28 percent. Although Lingle did not have her own estimate, she said, "I see it as the public getting to keep more of their own money that they will then spend in the economy, and I see it as an economic generator, not as something of a loss."

Just as Bush's proposal faces scrutiny in Congress, Lingle's proposed tax cuts will undergo resistance by state lawmakers. The difference is that Bush is dealing with a Republican Congress that enjoys flexibility, and Lingle faces a Democratic Legislature that must approve a balanced budget.


Published by Oahu Publications Inc., a subsidiary of Black Press.

Don Kendall, Publisher

Frank Bridgewater, Editor 529-4791;
Michael Rovner, Assistant Editor 529-4768;
Lucy Young-Oda, Assistant Editor 529-4762;

Mary Poole, Editorial Page Editor, 529-4748;
John Flanagan, Contributing Editor 294-3533;

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