Last Tuesday, two key Senate committees passed out legislation that will stall Hawaii's hope of near-term economic recovery.

The Committee on Economic Development and Technology and the Committee on Commerce and Consumer Protection replaced a tax measure intended to reduce decades-old tax breaks for certain special interests in favor of a 25 percent hike in the state general excise tax (GET) paid by every resident and business in Hawaii.

The proposed tax hike is one of the largest in state history. Raising the GET from 4 percent to 5 percent would significantly impede Hawaii's economic recovery because of the GET's broad reach. In a nutshell, this proposed tax increase would remove roughly $500 million from Hawaii's economy every year. As the saying goes, the GET taxes “;anything that moves”; — including rent, food, clothing, gas, nonprescription medicine and doctor visits.

>> The GET is regressive and most people won't be helped by the earned-income credit.

The GET is the most regressive form of tax imaginable. The poor, who have the least ability to pay the tax on ordinary daily transactions and have to spend nearly all of their funds to survive, would be hit hardest. All businesses in Hawaii also would feel the impact as they purchase goods, services and rent. Sales would slow, consumers will pay more and jobs will be lost.

The Senate committees attempted to dampen the impact by proposing an Earned Income Tax Credit (EITC). What they don't understand is that the EITC is not a panacea for the truly poor. It is riddled with problems, complexity and abuse by taxpayers and tax professionals. It also is counterproductive in the sense that it rewards only the poor who actually work and have multiple children. If you are out-of-work, don't have enough kids or work too much, you get nothing. Those out of work who have no earned income also would get no relief.

» Special interests have had a free ride for too long.

The Senate committees' move to leave untouched certain decades-old special interests in favor of increasing the GET will not have a positive effect on the economy. Quite the contrary. Increasing the GET by 25 percent would effectively increase the cost of living and doing business in Hawaii. Businesses would have fewer funds to hire, re-hire or retain workers. Roughly $500 million would be pulled out of the economy, leaving less revenue in small business' coffers, less money in peoples' pockets and fewer jobs for residents.

» The budget is balanced without a GET hike.

The Senate committees passed the GET increase under the pretext that it was necessary to balance the budget. However, the Lingle-Aiona administration already has proposed a balanced budget that didn't include a GET increase.

For the past year, the Lingle-Aiona administration has been working vigorously to spur Hawaii's economic recovery. But with a 25 percent state GET tax increase, Hawaii's hope of rounding the corner in the near future will be stalled.

The proposal to hike the GET will be vetoed; that much has been made clear by Gov. Linda Lingle.

Seante Ways and Means Chairwoman Donna Mercado Kim and other senators should table this bill and consider more responsible approaches to balancing the budget.

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Kurt Kawafuchi is director of the Hawaii Department of Taxation.