Don't raise the GET


POSTED: Thursday, March 18, 2010

Democratic state legislators are flirting with the idea of increasing the multi-level sales tax, called the general excise tax, to balance the state budget. Increasing a regressive tax would worsen Hawaii's already staggering economy and Gov. Linda Lingle should veto any such tax hike.

The probability of a veto is causing legislative leaders to hesitate in putting forth the tax increase, out of concern that they could not gather enough votes to override it. The only redeeming aspect of the proposal is a measure that would make it less regressive by including an earned-income tax credit to shelter Hawaii's lowest wage earners.

The state is in this predicament because public employee unions have refused to accept hourly wage cuts, a strategy made effective by labor contract “;evergreen”; clauses allowing terms of the previous contracts to continue indefinitely as long as negotiations drag on. The alternative under new union contracts has been the same hourly wages, Furlough Fridays and layoffs.

Sens. Carol Fukunaga, chairwoman of the Senate Economic Development Committee, and Roz Baker, chairwoman of the Commerce and Consumer Protection Committee, tailored the bill to raise the general excise tax from 4 percent to 5 percent, except on Oahu, where it would go from 4.5 percent to 5.5 percent because of the 0.5 percent surcharge to pay for construction of rail transit. Baker says 38 percent of the taxes would be paid by tourists.

The bill has been sent to the Senate's Ways and Means Committee, where chairwoman Donna Mercado Kim says it would be “;irresponsible”; to pass a bill that would receive the governor's veto “;that we would not be able to override.”; A two-thirds majority is needed in both houses to override a veto, and neither Senate President Colleen Hanabusa nor House Speaker Calvin Say is confident of an override.

Kurt Kawafuchi, the state tax director, indicated the administration's opposition, calling the tax increase “;terribly regressive,”; harming poor people disproportionately.

To avoid such an effect, the newly written Senate bill includes an earned-income tax credit—a tax rebate and wage supplement for the working poor. Hawaii has been criticized for years as among the most merciless states in taxing the working poor for its failure to approve such an apparatus, which has existed at the federal level since 1975 and been expanded in every administration since then.

When Lingle signed into law a widened tax bracket in 2006, Kawafuchi commented, “;Under this measure, Hawaii moves from the second-worst to the fifth-worst state in terms of taxing the poor.”;

An earned-income tax credit should be enacted after Hawaii's economy has recovered. It should not be used to justify a tax increase that is likely to have a destructive effect on the state's economy at the worst time.