No. 4 In the Nation Not Good Enough-Majority of Democrats in Legislature Pushing Hawaii’s Tax Burden Ranking from Fourth to Highest in the Nation; Naming Names

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Democrats in the state Legislature are not satisfied Hawaii has the fourth highest overall tax burden in the nation — they want Hawaii to be number one.

During the 2003 Legislative session, Democrats introduced and voted to support several bills, four that are still alive, which add up to the largest ever tax increase proposed in Hawaii or as much annually as $460 million or $460 per person.


They did so, according to their own words, to help fund public education, to bring more money into the state’s general fund for health and human services programs and subsidies for the poor and unemployed, and to expand the government’s responsibility to include financing elderly long-term care.

The tax increases, should they all become law, will take Hawaii to first in the nation in terms of overall tax burdens, from its current place of fourth, according to Kalapa.

Those tax increase proposals, according to Lowell Kalapa, president of the Tax Foundation of Hawaii, are:

*A bill to increase the state’s General Excise Tax by 12.5 percent, from 4 percent to 4.5 percent. This takes $180 million to $200 million from the economy and taxpayers and gives it to government to redistribute;

*Two bills to impose a $10 per month (increasing to $25 per month) tax on every resident, property owner, investor and business owner in the state to subsidize long-term care for the elderly. This removes $100 million from the economy and taxpayers and gives it to government to redistribute;

*A bill that will encourage counties to impose a new tax — a sales tax of 1 percent — on all transactions of goods, in exchange for funneling the counties’ share of the Transient Accommodations Tax back to the state. This takes $120 million to $160 million from taxpayers and the economy.

Sen. Sam Slom, R-Hawaii Kai, who is president of the small business advocacy organization Small Business Hawaii, called the 2003 session “significant and unique,” because it holds the record for the most tax bills introduced and the highest increase proposed.

He and other Republicans say Democrats seem to have every intention of making sure these tax bills become law, though Gov. Linda Lingle, a Republican in her first term in office, has expressed strong opposition to all tax increases. (That is with the except of the sales tax bill, which the governor says she supports based on her philosophy of “home rule.”)

Sources at the state Capitol say Democrat leadership already is counting the number of votes they can count on from the 36 Democrats of 51 members in the House and 20 Democrats of 25 in the Senate to override the governor’s vetoes. Partially because they want to make the Republicans, especially the governor, look “weak” and “bad” in the 2004 election; and partially because they do believe in the socialist or communist philosophy of redistributing wealth from those who work, start businesses and create wealth, to those who don’t.

But small business owners and other citizens opposed to the tremendous tax increase say they are outraged by the tax proposals, especially considering Hawaii already has the number one ranking for the worst business climate in the nation because of its tremendous tax and regulatory burden on businesses.

No other state has a General Excise Tax like Hawaii’s. No other state suffers through a tax on tax, or “pyramiding,” as does Hawaii with the General Excise Tax. And no other state taxes every aspect of a person’s life from basic necessities, to healthcare, to death, to the extent Hawaii government does, say Lowell and Slom.

Slom, who voted against all of the tax increase proposals, says the additional tax burden will have a devastating impact on small businesses, which make up 97 percent of all businesses in the state. He advocates taxes are the single most important issue facing Hawaii’s economic future.

“If the majority party is allowed to take away an additional $400 million or more of earned income from our citizens, it further reduces our ability to be self sufficient or to make choices in other areas such as education, healthcare or transportation,” Slom says.

Carol Pregill, president of the Retail Merchants of Hawaii, says the Hawaii retailers, the state’s largest employer with 20 percent of the workforce, are totally opposed to any tax increases.

The obvious impact of the tax increases is consumers will pay more for tangible personal property, Pregill says, estimating the new sales tax alone will add 24 percent to goods sold in the state.

Pregill also says the cost of doing business in Hawaii will increase, not only because it costs more to buy goods, but because retailers will be forced to find a way to catalogue their goods to include which items are taxed by the sales tax and which are not.

“From the stand point of businesses, this is not just about raising taxes, but also about adding more cost to doing business. Retailers will have to add a separate line item on the receipt for the sales tax as it will not be included in the General Excise Tax and it will only be added to goods, but maybe not all of the products being sold in the store. Mom and pop stores that sell different products will have to separate all of these out, and smaller stores that put price stickers everything will have to manually account for these changes,” Pregill says.

If legislators want businesses to retain employees and help the economy, the last action legislators should take is to raise taxes, especially using a “regressive tax” that hurts the poor the most because it is imposed on all consumers evenly, and not on a sliding income scale, she says.

“These taxes are only going to increase the cost of operations and slow growth,” Pregill says.

The question lawmakers have to ask themselves before supporting this kind of mammoth tax increase, Kalapa say, is can the Hawaii economy bear the largest tax increase ever imposed in Hawaii at this time?

Kalapa, with the voices of hundreds of small business owners echoing behind him, says absolutely not.

“A tax increase is not what we need to grow economic base,” Kalapa says. “This is not a robust economy