Tax package would benefit Hawaii taxpayers and tourism

THE ISSUE Congress is considering a proposal to reinstate a tax deduction for spouses who accompany their partners on business trips.

HAWAII'S congressional delegation should feel comfortable with a strategy coupling a tax exemption for all but the richest inheritances and a rise of the federal minimum wage, with a tax measure favored by the travel industry thrown in. The tax changes, while opposed by most Democrats, are beneficial to Hawaii.

A proposal sponsored by Rep. Neil Abercrombie and cosponsored by Rep. Ed Case would restore tax deductions for the full cost of traveling expenses for people who accompany their spouses on business trips. Congress eliminated the spousal deduction in 1993, and Abercrombie has championed its restoration for a decade.

Abercrombie said he negotiated with Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, to tack on the spousal tax deduction to the larger estate-tax bill. It would raise the exemption for taxes from estates worth up to $2 million to as much as $5 million, or $10 million from a married couple, and impose a 15 percent rate to inheritances of up to $25 million, and 30 percent above that level.

Most Democrats oppose the estate-tax exemptions, so Republicans made it more palatable by including a rise in the federal minimum wage from $5.15 an hour, the level since 1997, to $7.25, which the Democrats favor.

The bill has passed the House, but Senate Democratic leaders have vowed to oppose it because of their hostility for the estate-tax exemptions. To make the mixture even more complicated, Senate Democratic Leader Harry Reid of Nevada supports the spousal tax deduction, having offered an amendment to a bill three years ago that would have restored it.

Abercrombie seems to like all features of the bill. The estate-tax changes would allow cash-poor families to reinvest money that otherwise would go to the Internal Revenue Service. "In Hawaii," Abercrombie told the Star-Bulletin's Allison Schaefers, "with our high real estate values, even relatively small businesses can be subject to ruinous inheritance taxes."

The spousal tax deduction could be a significant ingredient in Hawaii's prosperity from tourism. Abercrombie said business travel fell after the deductions were eliminated, and its restoration could be a huge factor in drawing business and professional conventions. One wonders how many of the 11,000 lawyers attending the American Bar Association's convention here this week are accompanied by their spouses, and how the tax deduction would have changed that.

Rex Johnson, president of the Hawaii Tourism Authority, said the change will be sure to boost the state's business travel industry. He said business visitors account for 15.4 percent of Hawaii arrivals.

If approved, the spousal tax deduction would be good through next year. Abercrombie said he will try in future years to restore the deduction for more than a decade.