Posted on: Friday, December 21, 2001

Cayetano seeks liquor tax increase

By Kevin Dayton
Advertiser Capitol Bureau Chief

Gov. Ben Cayetano wants to double the liquor tax, cut the capital gains tax and eliminate the state inheritance tax.

In years past, lawmakers have rejected administration proposals to increase liquor taxes and cut the capital gains tax, and it wasn't clear yesterday whether the proposals will fly.

Cayetano said alcoholic beverages are "a luxury," and his administration has taken a strong stand against alcohol use because it leads to tremendous social costs.

"If people want to consume alcohol, they still may do so, but we're going to try to make it a little more expensive," the governor said.

Lawmakers traditionally are extremely reluctant to increase any type of tax in an election year. When Caye-

tano proposed a much smaller liquor tax increase in 2000 to help pay for drug treatment programs, lawmakers rejected it.

However, House Majority Leader Marcus Oshiro said budget cuts will be necessary next year, and lawmakers will look carefully at any potential source of new money.

"Inasmuch as this may be considered a sin tax and might have a beneficial effect of cutting down on alcohol-related diseases, he might find some support at the Legislature," said Oshiro, D-40th (Wahiawa, Whitmore).

State Sen. Sam Slom, R-8th (Wai'alae Iki, Hawai'i Kai), said he opposes the tax increase unless there is an "absolute need," and said he doesn't believe there is one. He said the Democrats are proposing a boost in so-called sin taxes because there will be less of an outcry, and said he won't vote for any tax increase.

"To me it's just a way to cover up the main intent, which is just to increase taxes," he said.

The state's liquor tax is relatively high, and the proposed increase would make the state's liquor taxes the highest in the nation by far.

According to 2000 statistics from the Tax Foundation, Hawai'i's tax of 93 cents a gallon on beer is the highest in the nation.

Thirty-three states and the District of Columbia imposed a tax on liquor comparable to Hawai'i's tax of $5.98 a gallon. Of those states, only three have a higher tax than Hawai'i's, and 10 had rates less than half of Hawai'i's rate.

For wine, 47 states and the District of Columbia impose taxes comparable to Hawai'i's $1.38 a gallon and only five have a higher tax.

Doubling the liquor tax would raise about $40 million more a year for the state, and the extra money would allow the administration to reduce the capital gains tax in a series of steps over six years.

The capital gains tax cut would cost the state about $3.5 million in lost tax collections next year, and when fully implemented would cost the state $16.5 million a year in lost tax collections, said state Tax Director Marie Okamura.

State Budget Director Neal Miyahira said the capital gains tax cut is meant to encourage investment in Hawai'i.

That proposal may face even more resistance at the Legislature, which has forced Cayetano to abandon the idea of a capital gains tax cut at least three times in the past five years.

Cayetano last proposed the idea as an economic revitalization measure after the Sept. 11 attacks, but lawmakers did not even consider it in their special session in October to respond to the economic fallout from the attacks.

The state inheritance tax is already scheduled to be phased out, costing the state about $20 million a year in lost tax collections.

The state tax is tied to the federal inheritance, and the federal tax cuts adopted earlier this year would have the effect of phasing out the state inheritance tax over the next 10 years.

Miyahira said ending the inheritance tax would encourage people to retire in Hawai'i, or at least eliminate a reason not to retire here.

This report contains information from The Associated Press.

Reach Kevin Dayton at kdayton@honoluluadvertiser.com or 525-8070.