JAMM AQUINO / JAQUINO@STARBULLETIN.COM Carol Anzai, president of the Kukui Gardens Association, wept yesterday morning while embracing City Councilmember Rod Tam at Kukui Gardens. Rep. Karl Rhoads watched with a smile at right. The closing of the 2007 Legislative session proved successful in securing $25 million in funding to keep the housing complex affordable. CLICK FOR LARGE

Tax-relief plans are weak, critics say

Legislators are wrapping up business this week and readying final votes on bills

Critics are saying the Legislature's tax relief package is too small and too narrowly focused.

The two tax bills, SB 148 and SB 1882, give a total of $49 million back to low- and middle-income taxpayers, according to legislative budget estimates.

One bill gives taxpayers a refund through a tax credit for those with an adjusted income under $60,000.

But people who make more than that will not get the credits.

The tax credit refund is on a sliding scale ranging from $160 for those filing a joint return with an adjusted income of under $5,000 to $90 for those with joint incomes between $50,000 and $60,000.

Single taxpayers making under $5,000 would get $140, with credits tapering off to $70 for single tax payers.

There is no tax credit for those with an adjusted income of more than $60,000 whether filing a joint or single return.

The tax credit is called for in the state Constitution, which says that if the revenues exceed the general fund balance for two years, the "Legislature shall provide for a tax refund or tax credit to the taxpayers of the state, as provide by law."

Lowell Kalapa, president of the Hawaii Tax Foundation, said that means that all taxpayers have to get something back.

"I don't think this meets the constitutional mandate. I can understand a sliding scale, but where is the equity in providing some people with nothing?" Kalapa said.

Kalapa said that in past years when the state provided a refund, it was given out equally.

"I think everyone should get something," Kalapa said.

Rep. Marcus Oshiro, finance chairman, said the Constitution allows the Legislature to write the rebate refund law and can decide how to give out the money.

"If you just say 'taxpayers' it could include tourists and nonresident corporations.

"Also we could have just given out $25 to those making $100,000 ... or just one dollar to everybody," Oshiro (D, Wahiawa-Poamoho) said.

Gov. Linda Lingle said the bills don't go far enough.

Lingle questioned the Legislature's approach to tax cuts and refunds, saying that the tax changes should be considered first and not fitted into the budget after everything else is set.

"They need to make it a higher priority. I'm glad there was some tax relief.

"Tax relief should have been one of the key issues of the session," Lingle said.

The governor complained that the Legislature ignored her main tax reform proposal to increase the standard deduction, so the working poor could keep more money, and indexing tax rates for inflation.

"If you don't index, then everybody is going to give up more of their income even though the tax rates don't change. It will be more because of inflation," Lingle said.

The Legislature, Lingle said, is too divorced from the day-to-day concerns of Hawaii taxpayers.

"They need to make tax relief a higher priority. There needs to be a better recognition of what families are facing, perhaps if legislators got out more in their communities and really see how people are struggling," Lingle said.

Lawmakers also inserted a new tax credit that is similar to a previous food and excise tax credit that was dropped when the state was facing a revenue shortfall about 10 years ago.

The credit is multiplied by the number of exemptions a taxpayer claims. For those making under $5,000 the tax credit would be $85 per exemption.

It would decrease until reaching those making between $40,000 and $50,000, who would get $25 per exemption.

Those making more than $50,000 do not get any credit.