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Increase in GE tax
would hurt Hawaii’s
most vulnerable

Hawaii voters need to let their state senators and representatives know they oppose a seemingly innocuous tax bill now making its way through the Legislature -- House Bill 1309, which seeks to raise the state general excise tax from its current 4 percent to 5 percent.

Taxpayers need to understand that what looks like a meager 1 percent increase to the GET actually amounts to a 25 percent hike in our state's most lucrative -- and most regressive -- tax. This is in a state where the cost of living and the tax burden are among the nation's highest. Few of us would quietly accept an overnight 25 percent price increase by supermarkets. Yet most of us pay more in taxes, overall, than we do for food. So why should we quietly accept a big tax hike? Unlike a retail price increase, in which we have no voice, as "consumers of government" in a democracy, we do have a voice. We can stop this bill before it's passed.

A family of four is already coping with a general excise tax burden of $3,585, according to the Tax Foundation of Hawaii. If House Bill 1309 is passed, that family can expect to pay an additional $900 on goods and services each year, bringing their total GET bill to nearly $4,500. That's not exactly small change, as the bill's proponents would like us to believe.

We who choose to make Hawaii our home already live with some of the nation's highest prices. There's no question our geographic isolation and other factors increase the cost of goods. But the GET also adds to the burden. That's because Hawaii is the only state in the nation with a general excise tax levied on all goods and services sold at all levels, whether it's between businesses or by consumers in checkout lines. Everywhere else, sales taxes are paid only by consumers on final purchases. Hawaii's convoluted general excise tax is a cash cow for our state government. Its "pyramiding" effect adds substantial hidden costs to the price of everything we buy, whether it's a gallon of gas, a new pair of shoes or monthly rent.

How often have you heard people say we are lucky to live in Hawaii because states like California and Nevada have much higher sales taxes? Actually, that's not really true. Because Hawaii's general excise tax is also charged on transactions between businesses -- and businesses pass that cost on to consumers -- our tax bill is actually much higher.

Many find it hard to believe Hawaii's GET is also applied to food and medical bills. Taxing these two essentials enables the GET to rake in the equivalent of a straight 12 percent sales tax. If food and medical bills were exempted, as they are in most other states, it would take a 16 percent straight sales tax, collected on goods, to generate the same revenue as our current 4 percent general excise tax!

Is there any relief in sight? Economic indicators show that as Hawaii's economy grows stronger, inflation is once again beginning to creep into our local economy. Prices in Hawaii rose 3.3 percent in the first half of 2004 over the same period in 2003, according to the U.S. Bureau of Labor Statistics, the biggest jump since 1990. A 25 percent GET increase will only raise prices higher.

The GET is hardest on those most vulnerable -- senior citizens, single parents, poor and working-class families, and the unemployed. We all need to buy basic necessities, but for poor families, these purchases take a much bigger bite out of their limited income. Raising the GET makes it even harder for our least advantaged neighbors to make ends meet.

Yet despite consistent nonpartisan research that shows excise taxes hit the poor harder than any other state or federal tax, some lawmakers seem blind to this fact.

A GET hike also would hit renters hard and add to Hawaii's skyrocketing housing costs because the GET plays a significant role in landlords' decisions to raise rents. Raising the GET will lead to higher rents and make living in Hawaii all the more burdensome for those least able to afford it.

House Bill 1309 also could lead to a fiscal nightmare. The bill gives counties the right to collect the GET increase to fund public transportation systems, a worthy goal. Provisions in the bill call for the money collected to be paid into the state treasury each month. The bill further specifies that this money be placed in special accounts to be administered and distributed by the state director of finance. But there's no guarantee any money raised by a GET increase will be used for its intended purpose. Let's not forget the track record both the state and City and County of Honolulu have compiled of raiding special funds to balance their budgets.

During the state's fiscal crisis in the 1990s, almost all special funds were raided. State records show that between 1996 and 2004, lawmakers took $155 million from the state highway fund alone and transferred it to the general fund. During the past decade, the City and County of Honolulu has taken more than $100 million from its special sewer fund to pay for general fund expenses, which has left Oahu with an aging sewer system that overflows during heavy rains, dumping thousands of gallons of raw sewage into our streets and ocean.

As with our troubled container recycling law (Bottle Bill), if the GET hike is passed many people might awaken only afterward. Let's not wait till then. The time to act is now. Let's tell our lawmakers this is simply a bad bill.

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