Friday, February 9, 2001
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Posted on: Friday, February 9, 2001

Tax cut proposals advance in House

By Kevin Dayton
Advertiser Capitol Bureau Chief

Two House committees have approved a reduction in the state income tax bite for all Hawaii taxpayers and elimination of the 4 percent excise tax on groceries for senior citizens.

The committees also have approved a new state "luxury tax" on items priced at more than $20,000.

Rep. Lei Ahu Isa, chairwoman of the House Economic Development and Business Concerns Committee, said she proposed the luxury tax to recoup some of the money the state would lose if legislators adopt her proposed cuts in other taxes.

Ahu Isa also wants a dramatic increase of the state’s tax credit for low-income filers.

To impose the luxury tax, the state would charge a 5 percent excise tax on expensive items such as cars and jewelry. The excise tax on other goods and service would remain at 4 percent.

Ahu Isa, D-27th (Puunui, Alewa, Nuuanu), said she doesn’t expect any great outcry from big spenders.

"They have tax attorneys; they have CPAs so that they can find deductions," she said. "They wouldn’t mind paying the 1 percent more. They can always get around it."

Other Democrats aren’t so sure.

"I hope she’ll be able to defend it on the floor of the House on second reading now. There may be a lively discussion as far as it being a tax increase," said House Speaker Calvin Say. "At this point, we’re still not inclined to increase any type of taxes, even for luxury items."

House Minority Leader Galen Fox, R-21st (Waikiki, Ala Wai), said he doesn’t understand why Hawaii Democrats aren’t listening to national experts who argue for tax cuts to boost consumers’ spending power as the national economy slows.

"The ways to do that is to cut taxes, so if we’re going to improve the economy, you have to actually cut taxes," Fox said. "You can’t cut one tax and raise another."

As part of the same measure, House Bill 426, Ahu Isa proposes elimination of the 4 percent excise tax on groceries for people 65 years old or older. She estimated the state would lose $6 million in tax collections, but said she hopes that money can be recouped through the luxury tax.

The measure was approved by Ahu Isa’s Economic Development Committee and is scheduled for a floor vote this week or next week.

A centerpiece of Ahu Isa’s tax proposals is a plan to increase the standard deductions allowed for state income tax filers. The standard deduction is now $1,500 for a single person, and Ahu Isa amended House Bill 938 to boost that deduction to $2,200 per person.

That would reduce each filer’s taxable income under state law, and Ahu Isa said she expects her proposal would cost the state about $26 million.

For single parent with two children making $20,000 in adjusted gross income, Ahu Isa estimated her proposal would save $150 a year.

Ahu Isa suggested the Legislature should increase the standard deduction instead of raising the state minimum wage, arguing that the poor would benefit more from the proposed tax break.

Say, D-18th (Palolo, St. Louis, Kaimuki), said Ahu Isa’s proposal for a tax cut instead of raising the minimum wage is "a point well taken."

He said the House Finance and Labor Committees will consider taking up those issues this session, but said a large majority of House Democrats favor an increase in the minimum wage.

The same bill would also boost the state’s low-income tax credit for the state’s poorest taxpayers and would offer a 5 percent income tax credit to encourage businesses to renovate older commercial buildings.

The House Economic Development and Tourism Committees gave preliminary approval to the measure, which advances to the House Finance Committee.

The Senate Ways and Means Committee deferred action on a proposal yesterday by Gov. Ben Cayetano that would also increase the standard deduction for Hawaii taxpayers. That committee also delayed action on Cayetano’s proposal to reduce income tax rates.

The House Economic Development Committee has also approved other proposals to reduce the corporate income tax and accelerate the scheduled reductions in the excise tax on services.

Those measures now advance to the House Finance Committee, and they may be tough to sell there and in the Senate.

House Finance Chairman Dwight Takamine has said it is too soon to know whether tax relief will be possible, but Senate President Robert Bunda said he doubts it.

"I don’t get the feeling· from the caucus that any type of relief would be warranted at this juncture because we’re all worried about the raises," said Bunda, D-22nd (Wahiawa, Waialua, Sunset Beach). Bunda also said legislators are also worried about "how we fund Felix," the consent decree requiring increased services for special education students.

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