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Tax increase should be
tied to transit solutions

THE ISSUE The governor wants the counties to decide how to use money that is raised from an excise tax increase.

CORRECTION Tuesday, April 19, 2005 » U.S. Reps. Neil Abercrombie and Ed Case voted on April 13 against a bill that would repeal federal inheritance taxes in their entirety. An editorial on Page A11 Saturday incorrectly stated that they voted in favor of the bill and that the vote occurred the previous week. The Honolulu Star-Bulletin strives to make its news report fair and accurate. If you have a question or comment about news coverage, call Editor Frank Bridgewater at 529-4791 or email him at corrections@starbulletin.com.

GOVERNOR Lingle's stint as Maui mayor gives her a view from the other side of the fence when it comes to revenue struggles between the state and the counties. Her perspective has translated into a "home rule" political philosophy whereby municipal governments largely decide on imposing and spending their own taxes.

However, the excise tax increase the state Legislature is considering has been pegged all along for transportation improvements, and Lingle's suggestion that lawmakers release counties from that use creates a distraction from the issue.

It also feeds suspicions that the money raised, like other special funds, would be thrown into the pot to pay for other expenses. Taxpayers have indicated that they will accept an increase for traffic solutions, not for other matters.

Although all counties would be authorized to impose an increase -- the House has approved up to 1 percent and the Senate up to one-half of 1 percent -- the bill is primarily aimed at Honolulu, which has the most extensive traffic problem, while neighbor island considerations seem to be just along for the ride.

The measure ties Honolulu to a rail transit system, disallowing funds for repair or construction of roads or highways. The other counties are given more leeway because their needs are different from Oahu's. They may use the money for buses, highways, walkways, bicycle paths and other transportation improvements. Moreover, counties will choose their own increases, based on what they plan and what their taxpayers are willing to lay out.

Counties should be able to raise their own revenue, which at present is chiefly limited to property taxes. They have sought the authority from the state for decades, but legislators have yet to release their reins. However, those previous measures were not targeted specifically for transportation improvements.

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Compromise needed in
repeal of death tax

THE ISSUE The U.S. House has approved a bill that would repeal the inheritance, or "death," tax.

IN what is becoming an annual ritual, U.S. House Republicans -- joined by Reps. Neil Abercrombie, Ed Case and a few other Democrats -- voted last week to repeal inheritance taxes in their entirety. If the past continues to repeat itself, the proposal will die in the Senate unless a reasonable compromise can be reached. Such an agreement is needed to provide families with certainty about their financial future.

Abercrombie has said in past years that he favors an end to the "death tax" to protect family-owned businesses in Hawaii. He has explained that, while the super-wealthy can afford lawyers to jump through loopholes, the small businesses get hit by enormous inheritance taxes. That outcome would be felt especially in Hawaii because of the state's high property valuations.

That does not explain why Abercrombie voted against a compromise proposed by Rep. Earl Pomeroy, D-N.D., that would exempt taxes on estates of up to $3.5 million, or $7 million for a couple -- an exemption for all but the wealthiest three-tenths of 1 percent of estates. Case voted for the Pomeroy amendment, which was defeated by a 238-194 vote.

Senate Republican Leader Bill Frist has assigned Sen. Jon Kyl, R-Ariz., to work with Democrats to find a compromise. Otherwise, the proposed repeal of the estate tax is likely to be defeated by a Democratic filibuster. Senators Akaka and Inouye should support a compromise.

President Bush's 2001 tax cuts included a gradual increase in exemptions leading to a phaseout of the estate tax by 2010, but the tax is due to be restored a year later at the 2001 levels -- a 55 percent rate for estate values above $675,000. About 2 percent of estates were taxed during that year.

This year, proponents of a Pomeroy-styled compromise have a new, compelling argument: It would offset as much as half of the Social Security shortfall over the next 75 years.

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