Sides differ on
burden of higher
excise tax

Estimates on the cost to families
range from $227 to $528 a year

There's no doubt that the general excise tax increase approved by the City Council will mean people will pay more taxes.

But just how much more depends on who's talking.

The City Council's 7-2 vote this week to approve the surcharge authorized by the state Legislature means the excise tax on goods and services on Oahu will grow to 4.5 percent from 4 percent. The tax will be levied for 15 years beginning Jan. 1, 2007.

Estimates for how much a family of four would pay in additional taxes have ranged from a low of $227 to $528.

The two most quoted figures come from the Tax Foundation of Hawaii and the state House Finance Committee.

"To me both analyses are valid; they're just coming from two different points," state House Finance Committee clerk Nandana Kalupahana said yesterday.

Opponents of the tax increase have frequently cited the Tax Foundation's $450-a-year figure for a family of four.

U.S. Rep. Neil Abercrombie, who has been lobbying the Council to pass the tax increase, called that figure "an urban legend."

"It's a made-up number just to scare people," Abercrombie said after testifying at Wednesday's Council meeting.

The House Finance Committee, meanwhile, estimates that the average family of four on Oahu will pay no more than $245 a year. It released its analysis in May after opponents of the tax increase began using the Tax Foundation number.

Critics of the Finance Committee's calculations say that the committee's number is based on a simplistic sales tax approach and does not take into account the cumulative effect of Hawaii's general excise tax, which is paid by businesses, and then their costs are passed on to consumers.

Lowell Kalapa, president of the Tax Foundation of Hawaii, said that the multiplier effect of the excise tax must be calculated in to accurately reflect the hidden costs paid by consumers who lose their buying power as the tax goes up.

"Goods and services are taxed multiple times," Kalapa said.

The $450 figure, "that's a pretty solid number because it does reflect the pyramiding of the general excise tax," Kalapa said.

The Finance Committee, meanwhile, looked at how much money a family had to spend on goods and services that are subject to the GET.

"The (additional tax) cost to the family is based on what that family is making," Kalupahana said.

The Finance Committee also started from a lower income for the average family -- $70,000 vs. the Tax Foundation's $82,000 -- basing that income number on figures from different government agencies.

It concluded that a family of $70,000 would pay at most $245 in additional taxes with the 0.5 percent excise tax hike.

The committee analysis also said that for a family to end up paying $450 more a year in state excise tax, it would have to have an annual income of $130,000, which is not realistic for the average family of four.

"Our analysis comes from a commonsense point of view: How can you pay that amount if your income doesn't even allow that?" Kalupahana said.