Next Stop, A Tax Hike

article top

Well, you knew the other shoe was going to drop and it did! The Senate Ways & Means Committee pushed out a bill that will hike the general excise tax rate from 4 percent to 4.5 percent.

To soften the blow on the poor, the Committee has also included the re-establishment of the food tax credit for those at the bottom end of the income scale. The reason? Funding for education, or so lawmakers explained. Lawmakers are relying on a poll conducted by one of the major Honolulu dailies, which quoted that readers would be willing to pay more in taxes to improve education and fix school facilities.


Well, that excuse was quickly dispelled when the same paper noted in its editorial page that the question really focused on the point that people would be willing to pay more in taxes to improve education if policy makers and education administrators had a solution. However, at this time the paper noted, there does not appear to be a solution that either the Legislature or school administrators have that will promise improvement of public education in Hawaii. So why the tax hike? It appears that lawmakers are afraid that war will break out in the Middle East, which will have a severe impact not only on the economy but on state tax revenues. Lawmakers believe that by raising the general excise tax, the increased tax burden will be passed on to visitors as opposed to residents. But what if war breaks out and visitors stop coming to Hawaii, who then will pay the increased general excise tax?

Of all the taxes levied in Hawaii, the general excise tax is the most regressive, taking more of a percentage out of lower income household budgets than it does from a middle or high income family budgets. As a result, any hike in the general excise tax hurts the poor, a fact that seems to have been lost on social service agencies who appeared at the hearing.

They not only supported the hike but asked that the rate be raised another half percent to 5 percent to ensure social services are adequately funded to help the poor(?). So much for helping the poor by raising the tax that hurts the poor the most.

To a large degree, the financial crisis facing lawmakers is a creation of their own. While lawmakers would like to blame the lack of tax revenues on a poor economy, all indicators seem to point in the other direction. In fact, one of the brighter spots in the state’s economy is construction, especially construction of new homes. As a result of lower interest rates, there is little inventory in the residential category. What it appears is that lawmakers have given away the store in recent years in the form of those darn tax credits.

This is evidenced in the fact that general excise tax collections are increasing while net income tax collections are trailing last year’s collections. No doubt those tax incentives called tax credits have made a big dent on the state’s fiscal picture. Now lawmakers have to find other ways to pay for the state’s spending.

Since lawmakers also don’t like cutting spending and state administrators, in particular education officials, scream every time there is another round of spending cut directives, lawmakers believe they can justify a tax increase. Saying that it is for education makes it sound even better. But the long and short of it is that all the rest of us are being asked to pick up the tab so that a few chosen taxpayers can take a free ride on the tax credits. This point was made to lawmakers when they first started down the tax credit path. But lawmakers chose to ignore that advice believing that they could stimulate the economy with these tax credits while refusing to make concurrent reductions in spending.

So now the only alternative seems to be to raise taxes, especially if the governor is unwilling to tap the hurricane relief fund. Of course, that assumes that no more cuts will be considered by the Legislature.

That also assumes that lawmakers don’t give away more of the store this session by handing out even more tax credits. Even one of Hawaii’s former governors has expressed alarm at how current leaders of the state spent the state’s meager resources in the form of tax credits and tax incentives.

He notes that both liberals and conservatives have collaborated to raid the state treasury, raids that would go unnoticed if there was a lot of money but are painfully obvious when there are no resources. So it is now up to taxpayers across the state. They can agree to support the tax hike, or they can tell their lawmakers to find another alternative. In any case, it seems that lawmakers need to exercise a lot more fiscal discipline and restraint.

”’Lowell L. Kalapa is the president of the Tax Foundation of Hawaii, a private, non-profit educational organization. For more information, please call 536-4587 or log on to”’