The majority of Senate Ways and Means Committee members this morning killed the proposed 1 percent General Excise Tax hike.
HB 793, SD1, which raised the state tax by 25 percent, would have generated up to $600 million by taxing goods and services at every level of transaction.
Another portion of the bill, which eliminates General Excise tax exemptions for a number of Hawaii businesses, including Hawaiian Airlines, Matson and general contractors, is moving forward.
Ways and Means chair David Ige, who supported the GET tax hike and the removal of the exemptions, said exemptions will generate just $191 million.
Sen. Donovan Dela Cruz, D-North Shore, lead the effort to kill the tax hike. He asked fellow Senators to split the bill so only the exemptions remained.
In a dramatic and unusual twist, 10 Democrat Senate members went against their chair to kill the tax hike.
Dela Cruz told Hawaii Reporter that his position has always been to oppose the GE increase, and to support the position of Gov. Neil Abercrombie and House against the tax hike.
He said he received hundreds if not thousands of calls, emails and faxes from his constituents, largely in opposition. “The fax machine is going off the hook and we are getting dozens of emails by the hour,” Dela Cruz said.
It is not a referendum on a power struggle or balance of power in the senate, he said. “This is way bigger than any of us,” Dela Cruz said.
Realizing the tax hike might be defeated, Ige tried to delay the vote for two hours.
Senators said the chair tried to postpone the vote so several committee members would be unable to vote because they would be in other committee hearings. But the majority, who took a brief recess and met outside, then called for the vote.
The final vote to kill the GE tax hike and keep removal of tax exemptions was 10 in favor and 4 opposed.
Sens. David Ige, Suzanne Chun Oakland, Carol Fukunaga and Sam Slom voted against the measure.
Slom, who opposes any tax hikes, including the GE tax hike, said he was concerned about the impact of the removal of the tax exemptions. Some businesses, such as contractors, have exemptions because they are double and triple taxed. Others, such as Hawaiian Airlines, expect the change would cost them $5 million to $6 million and leave them less able to compete against national airlines that don’t pay the tax. He said removing the exemptions would result in tax increase and unintended consequences.
Ige said the rate increase from 4 percent to 5 percent – or 25 percent tax hike – is now “off the table.” He said all 76 lawmakers in the House and Senate would be looking for ways to balance the budget through other tax hikes or budget reductions over the next few weeks. The session is scheduled to wrap up on May 5.
The Democrats separating the bill include Sens. Donovan Dela Cruz, Donna Mercado Kim, Kalani English, Gilbert Kahele, Ronald Kouchi, Pohai Ryan, Jill Tokuda and Glen Wakai. Sen. Will Espero voted yes with reservations.
Voting to separate the bill was a vote to kill the GE Tax hike.
A second vote was to pass the bill as amended in original form as HB 793, which temporarily suspended the exemptions for certain persons and certain amounts of gross income, thus requiring the payment of the tax. Sens. Donovan Dela Cruz, Donna Mercado Kim, Kalani English, Gilbert Kahele, Ronald Kouchi, Pohai Ryan, Jill Tokuda and Glen Wakai, Michelle Kidani and Will Espero supported the original House version.
Ige said while the Senate version of the budget is not balanced at this time, no other versions in the House or with the Governor are balanced at this time.
While the GE Tax proposal is dead for now, it could return before the session ends. In addition, other tax measures such as taxing pensions and increasing the tax on alcohol and soda, could still pass.