Tax cuts: $51M package falls far below gov’s target

The proposal raises the standard deduction but Lingle had wanted a $120 million plan

The House and Senate reached a tentative agreement last night on a series of state income tax cuts that fall short of the target of $120 million set by Gov. Linda Lingle.

The budget chairmen, Sen. Brian Taniguchi and Rep. Dwight Takamine, proposed discussing increasing the standard deduction, increasing the number of tax brackets and adding an income tax credit for victims of the March floods across the state.

The total package was just $50.8 million, compared to Lingle's targeted $120 million in tax reductions.

Taniguchi called the tax plan "a good start."

"As long as the economy stays strong, it is going to be hard not to take a look at it again next year," Taniguchi said.

Lingle, in January, said the state surplus was large enough to return up to $120 million to taxpayers. Legislators earlier in the evening had proposed tax cuts of up to $77 million.

At an 8:30 p.m. meeting, Taniguchi (D, Moiliili-Manoa) said the Senate was willing to add the proposed standard deduction increase, worth $10.8 million a year in tax help, to the tax package.

Kurt Kawafuchi, state tax director, called the move "a great one."

"This helps a lot for real tax relief," Kawafuchi said as he sat in the audience watching the conference committee action at the state Capitol.

By the end of the evening, Takamine and Taniguchi agreed to the standard deduction proposal which had been a cornerstone of Lingle's tax plan for the last four years.

Earlier yesterday, Takamine had proposed $50 million in tax reductions by increasing the number of tax brackets, which would more closely match the state tax rolls and reduce the number of people paying the maximum tax.

The House had passed a bill noting a married couple filing a joint return reaches the maximum tax bracket with an $80,000 income. This means "they are taxed in the same bracket as a family with an annual income of $900,000," the measure said.

But at 11 last night, the tax bracket portion was dropped to only a 20 percent reduction, worth about $40 million in tax cuts.

Before the indications of movement by the Senate, however, both the Lingle administration and the Republican minority in the Legislature were preparing to blast the Democratic majority for not providing more tax reductions.

"I would hope they would give more meaningful tax relief," Kawafuchi said earlier in the day.

He pegged the original tax plan as being worth less than $100 for a family of four.

"I don't think that is tax relief," Kawafuchi said.

Senate GOP leader Fred Hemmings called the first proposals "only token relief."

"It is sad when you look at it. There is nothing for the working poor," he said.

If the standard deduction proposal survives the night, it would represent a major victory for Lingle, who has pushed for changes to the deduction since taking office.

Lingle originally asked that the standard deduction be raised to 75 percent of the federal deduction.

A married couple would be able to claim a deduction of $7,500 instead of the $1,900 they can deduct now. The tax deduction would help the working poor and people on the lower rungs of the economic ladder such as students and part-time workers.

Both the administration and the Legislature, however, have dropped proposals for a tax rebate, which Lingle floated at the beginning of the year. Before the March floods and the Kauai dam break, Lingle had asked the Legislature for a one-time tax refund of $150 per taxpayer.

Since then the administration has asked for more than $30 million in emergency appropriations that originally were not included in the state's $4.7 billion budget.

Last night, budget conferees approved an extra $62 million in emergency disaster relief to help the state recover from six weeks of rain in February and March.

All the proposals must be voted on by the entire Legislature next week when it goes into session on Tuesday.

The Legislature is scheduled to adjourn for the year on Thursday.