The Legislature reduced the average amount that employers pay into the state's unemployment compensation fund by more than two-thirds, as the national recession was about to begin three years ago. Results of that action, combined with increases in high-level income taxes and the general excise tax—both now under consideration—could continue sinking Hawaii's economy as joblessness soars.

In 2007, legislators lowered the average amount that employers pay into the unemployment compensation fund from $280 to $90 per employee. By the middle of last year's session, the state's jobless rate had risen to more than 7 percent, sharply reducing the fund to compensate those laid off.

Increases in the tax are obviously needed to provide monthly insurance to the jobless. Present state law will prompt an increase in annual employer payments into the fund to a per-employee average of $1,070 this year and $1,520 next year.

Concerned that an abrupt increase of more than 10 times what employers have been paying would cause layoffs, Gov. Linda Lingle is rightly calling for gradual increases that would not reach an annual average of $900 until the fourth year.

A bill just approved by the House would lower averages to $630 this year and $970 in the second year.

“;This could be a job killer,”; Republican Rep. Gene Ward said of the House-approved measure.

That could be especially so if the Legislature goes forward with increases in the income tax and general excise tax to achieve a balanced budget without having to lay off state employees, reduce their contractual hourly wages, or continue or even increase their Furlough Fridays, days off without pay.

The Legislature is considering a 1 percentage point increase of the 4 percent general excise tax, which would amount to 5.5 percent on Oahu after including the 0.5 percent surcharge to pay for Honolulu's rail transit system. That is the state's most regressive tax, hurting low wage earners the most.

Proponents of higher income taxes for top wage earners contend that such an increase would do the least harm to the economy. That was the rationale last year, when legislators increased the income tax on those rates from 9 percent to 11 percent for couples making at least $300,000 and singles making $150,000 or more.

However, as Lingle pointed out at the beginning of this legislative session, more than two-thirds of the taxpayers who fall in that category are sole practitioners, partners or others who report their business income through personal income tax returns.

Legislators face a formidable task in closing a projected shortfall of $1.2 billion in the state's 2009-2011 biennial budget. Unfortunately, they appear to be of the mind that raising taxes is preferable to cutting costs.