Bill to increase GET faces uphill battle


POSTED: Wednesday, March 17, 2010

A plan to raise the general excise tax 1 percentage point is on the move, but Senate leaders are predicting it will not get far.

The action is the first sign this year that some Democrats in the Legislature would risk a big tax increase in an election year.

Two Senate leaders — Sen. Carol Fukunaga, Economic Development Committee chairwoman, and Sen. Roz Baker, Commerce and Consumer Protection Committee chairwoman — rewrote House Bill 2877 to raise the state GET to 5.5 percent from 4.5 percent on Oahu and to 5 percent from 4 percent on the neighbor islands. The bill now goes to the Ways and Means Committee.

The tax increase could raise $458 million a year. It would be in effect for roughly 27 months and then tax rates would revert to current levels, according to Baker (D, Honokohau-Makena).

The Senate last year passed a 1 percentage point tax increase, but coupled it with a series of exemptions and tax breaks so that it was estimated to raise only $220 million, said Sen. Donna Mercado Kim, Ways and Means chairwoman.

Kim suggested yesterday that a tax increase may not pass, saying it didn't appear to be politically viable because it would be rejected by Gov. Linda Lingle.

; “;It would be irresponsible for us to pass a bill that we would not be able to override,”; Kim said in an interview yesterday.

Baker says the original bill killed nearly $600 million in tax exemptions that local businesses, health insurers and nonprofits said would send the state into an economic tailspin.

“;We have to look at what is best for our economy.  … Maybe more of our colleagues will get a lot more courage and stand up for something,”; Baker said.

According to Kim, there is a question whether the Senate could approve a big tax increase by the needed two-thirds margin to survive an expected veto.

Lingle's office did not return requests for comment, but Kurt Kawafuchi, state tax director, called the tax increase “;terribly regressive,”; meaning it would proportionally hurt poor people more than rich people.

“;We don't support it,”; Kawafuchi said.

; And, Kim said, even before the bill got to Lingle's desk, there are questions about the tax increase in the House.

“;The governor is going to veto, we know that,”; said Kim (D, Kalihi Valley-Halawa). “;We don't know if we have the votes to override, and the House doesn't have the votes.”;

Senate President Colleen Hanabusa was equally uncertain about the chances of a tax increase passing.

“;I am not sure we have the votes to override a veto, therefore it is going to be a matter as we progress, if there are no other alternatives, what the Finance and Ways and Means committees do,”; said Hanabusa (D, Nanakuli-Makua).

For Baker, however, the tax bill is better than the alternative of watching more government services chopped and state workers laid off.

To counter the regressive nature of a GET tax hike, the bill includes an earned income tax credit for low-income taxpayers. Also, Baker says that 38 percent of the GET is paid by tourists and therefore “;exported”; and not borne by local residents.

Randy Perreira, Hawaii Government Employees Association executive director, welcomed the tax plan, saying it is something he has been urging the Legislature to do for a year.

“;Now at least the Senate has put the tax increase as an option as part of the way to balance the budget,”; Perreira said.

Baker says if the state can't come up with more money to balance the budget, “;It's going to look a lot bleaker.”;

“;Nobody likes to raise taxes, but this situation is different,”; she said. “;We already have laid off people. We have cut a chunk out of government.

“;We are not sent here to get re-elected, we are not sent here to find an easy way out. We are sent here to deal with tough issues,”; Baker said.