The September 11th attack
State drops tax cut proposal
| • | S&P credit watch no deterrent to state plan |
By Kevin Dayton
Advertiser Capital Bureau Chief
Gov. Ben Cayetano is backing away from a proposal to cut the state capital gains tax because he says it would cost the state too much in lost tax collections.
The governor proposed the capital gains tax cut as one way to improve the state's business climate following the Sept. 11 terrorist attacks on the Mainland.
Cayetano has proposed similar tax cuts in the past, but they failed to win approval in the Legislature. He said yesterday the tax cut is still a good idea, but said the state can't do it right now.
Reducing the tax would cut state tax collections by $48 million a year, and "It's too big a hit ... so we're not going to press that," Cayetano told reporters yesterday.
Cayetano defended some of his other proposals to boost the state economy, and said lawmakers who criticized his ideas haven't come up with much in the way of alternatives.
"Right now we need to deal with the crisis at hand," he said. "You have to be totally out of it not to see every day the number of people who are filing for unemployment compensation going up. It's more than doubled. We need to do something, and the alternative that I've seen so far is to do nothing."
Seiji Naya, director of the state Department of Business, Economic Development and Tourism, said yesterday he believes the state may lose $1 billion and 28,000 jobs this quarter alone because of the abrupt downturn in tourism.
Lawmakers have questioned Cayetano's plans to spend an extra $1 billion on construction projects to boost the local economy because they worry it may put the state too far into debt. Some lawmakers say they are willing to spend more on construction, but believe the state should first speed up projects that already have been approved.
Cayetano said he wants to advance new public works projects to replace private construction that may be delayed or canceled in the wake of the terrorist attacks. And he said that initiative can't wait.
He said if nothing is done, "you'll have a real meltdown in the economy because as we're struggling to get tourism back on its feet, we need to shore up those areas where the economy is still fairly strong.
"Construction is one of them," he said.
If lawmakers wait until the regular session next January to approve additional construction projects, the money won't be available until next July, he said, adding, "That's much too long."
Some lawmakers have also questioned Cayetano's plan to transfer $213 million in reserves from the Hawaii Hurricane Relief Fund into the state's rainy day fund so it can be used to pay for services for laid-off workers and other state programs.
Some have argued that money should be returned to people who paid premiums into the fund, while others contend the money may be needed to prop up the insurance industry in the future.
"That's money that we need to use now, not later. We're being hit with a financial hurricane right now," Cayetano said.
Reach Kevin Dayton at 525-8070 or at kdayton@honoluluadvertiser.com.
