Sunday, March 4, 2001
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Posted on: Sunday, March 4, 2001

Repeal of state tax cuts is a terrible idea

If the Hawaii Legislature truly believes it cannot get through the current session without raising taxes, it should look somewhere other than the recently reformed state income tax system.

But that, astonishingly, is what they seem bent on doing. The Senate Ways and Means Committee has positioned — on a standby basis — a measure that would repeal a substantial chunk of the income tax rollback approved by the 1998 Legislature.

Ways and Means Chairman Brian Taniguchi says the measure may be needed to provide the money for pay raises for teachers and for other public union contracts.

Taniguchi says the state may simply be unable to "afford" the income tax rollbacks for this year and next year.

That kind of thinking can be treacherous. It would be just as logical — perhaps more so — to say that the taxpayers cannot "afford" raises for teachers and others.

Which presents an interesting political dilemma for lawmakers: Whose ox will they gore, the taxpayers or the politically influential public-worker unions?

But it is a dilemma only if one’s thinking is restricted to two choices: raise taxes or reject raises. What legislators must do is think beyond this simple equation into more difficult, but ultimately more productive, directions.

There is no question the unions deserve raises. But those raises do not have to come at the expense of tax reductions promised with much fanfare just a few years ago.

The best way to achieve decent pay packages for the unions (with the teachers coming first in line) is to work outside the box on creative contracts that build in efficiency, flexibility and reform along with better pay.

That is the direction being pushed by Gov. Ben Cayetano, who has already seen some interest on the part of enlightened labor leaders. It would be a mistake to undermine this delicate reform progress by converting the debate into a simple zero-sum money issue.

And as for the tax cuts, did we hear House Speaker Calvin Say correctly when he said he has not sensed much "appreciation" from the taxpayers for what was done to the income tax code in 1998?

A friendly hint: If the Legislature attempts to take away the income tax rollbacks on the basis of insufficient taxpayer "appreciation," there will be hell to pay.

Furthermore, if indeed there has been relatively small taxpayer recognition of the rollbacks, it might be because they have not even been fully phased in. Plus, the only taxpayers who saw any immediate impact of the reductions were the relative few who immediately reduced their payroll deductions in anticipation of the lower rates.

What will lawmakers say to those taxpayers if they cancel years two and three of the rollbacks?

Finally, the income tax cuts were not in response to a booming economy that was producing surpluses that by rights should be returned to the taxpayers. In fact, the thinking was exactly the opposite: In the face of a weak economy, lawmakers experimented with a local form of "trickle down" economics by approving income tax reductions as a stimulus measure.

The jury remains out on whether this experiment worked or not. But having launched the experiment, one would think the Legislature would feel morally obligated to see it through.

In short, repealing the income tax cuts before they have even had a chance to fully phase in is a bad idea. Don’t do it.

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