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The Honolulu Advertiser
Posted on: Sunday, April 6, 2003

Tax-hike plans advance despite troubled times

By Lynda Arakawa
Advertiser Capitol Bureau

Usually when it comes to taxes, politicians would rather propose something — anything — than measures that could bite back at election time.

Legislative proposals

• COUNTIES

HB 1554 HD1 SD2: Would allow the counties to impose a 1 percent sales tax on goods and services in exchange for giving up their share of hotel room tax revenues.

• EXCISE TAX

HB 510 HD2 SD2: Would increase the existing 4 percent excise tax to 4.5 percent. The measure would raise about $180 million, with $120 million steered toward education programs, $50 million to a food tax credit for lower income families and between $9 million and $10 million to raise the income tax standard deduction.

• VEHICLE REGISTRATION

HB 1182 HD2 SD2: Would impose an unspecified increase in motor vehicle registration fees to pay for additional statewide emergency medical services. Senate leaders are leaning toward raising the fee by $5 to $10.

• LONG-TERM CARE

HB 1616 HD1 SD2, SB 1088 SD2 HD2: Would establish a long-term-care income tax of $120 a year, which would increase to $276 a year by the end of 2011. Those who pay the tax for 10 years would be eligible for the full $70-a-day cash benefit for up to one year. The cash benefit would grow to $83.58 per day in 2013.

The bill would establish a tax credit of up to $120 a year for five years and a credit of up to $180 a year for the following five years for people who pay the tax and purchase a long-term-care insurance policy.

• LONG-TERM CARE TAX CREDIT

SB 1399 SD2 HD2: Another measure providing tax credits for long-term care would provide long-term-care insurance policyholders a tax credit of $2,500 or 50 percent of insurance premium costs, whichever is less.

Yet a number of tax proposals, from paying an extra penny per dollar on goods and services to $10 more a year for vehicle registration, are advancing through the Legislature during a time of budget problems and economic uncertainty.

"This is the first year we've had so many barn burners," said Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "Usually it comes down to the excise tax increase, and all the rest kind of die and go away. They're desperate for money, that's the short story. They're really desperate to raise money."

With lower state revenue growth projections from the state Council on Revenues last month, lawmakers are looking for ways to meet an anticipated $119 million budget shortfall for the fiscal year ending June 30 and the next two fiscal years.

One tax increase is the Senate Democratic leadership's proposal to increase the general excise tax from 4 percent to 4.5 percent to raise money for education initiatives. The measure, however, faces formidable obstacles in the session, as the House is resistant to increasing the general excise tax. Gov. Linda Lingle has said she is opposed to raising taxes and fees.

"What's troublesome about this proposal for an excise tax increase is it's been identified for new spending," Lingle said. "We are not in a time frame, in a circumstance, where we should be talking about much new spending."

The Lingle administration is also opposed to a Senate measure that would raise the motor vehicle registration fee by another $5 to $10 for emergency medical services.

The governor also doesn't like measures advancing in both houses to impose a $10 monthly tax to pay for a state long-term-care program. Lawmakers, however, attached to the bills a tax credit for long-term-care policyholders, a provision Lingle supports.

The measure that may have the best chance of getting approved is the one that would give counties taxing authority, with the most recent draft in the Senate allowing the counties to impose a 1 percent retail sales tax. The House has supported giving the City and County of Honolulu the authority to impose a general excise tax surcharge.

Lingle, a former Maui mayor, said she supports giving the counties taxing authority based on a home-rule principle.

All of these initiatives are likely headed to conference committee, where House and Senate lawmakers work out differences between their versions of bills.

The tax and fee increase proposals prompted House and Senate Republicans last week to hold a rally protesting the initiatives, saying the increases would burden Hawai'i residents and hurt the economy.

"The problem is government doesn't know how to stop spending when the money is good," Rep. Guy Ontai, R-37th (Mililani, Waipi'o), said at the rally. "The message that I want to say is that at whatever level, the government will always claim that it's really hurting for money. Don't sucker for it."

Senate Ways and Means Committee Chairman Brian Taniguchi, D-10th (Manoa, McCully), said public education programs face further cuts if the state does not raise taxes.

"In the current budget situation, we don't see anybody else coming forward with any other types of ideas as to how we can do this," Taniguchi said. "Everybody's saying, 'Oh, well we should just cut,' but I think that our schools need additional resources, and we're going to try to do that.

"There's never really a good time to raise taxes. I think that given the kinds of challenges that we face with the budget that this is the time to do it."

Kalapa said the tax increases are expected to total more than $400 million annually.

Raising the general excise tax is estimated to raise about $180 million a year, of which two-thirds would go toward existing and new education programs, with the rest paying for a food tax credit for lower-income families and an increase in the income tax standard deduction.

A $10 increase in the motor vehicle registration fee is estimated to raise about $9 million annually.

A retail sales tax imposed by the City and County of Honolulu is estimated to raise about $120 million each year, which would grow to as much as $160 million if the other counties impose a tax.

The long-term-care tax is estimated to generate about $100 million annually.

While lawmakers are also pushing forward tax credit measures, critics say they won't provide much relief.

The long-term-care income tax measure also includes a tax credit for those who have long-term-care insurance. The tax credit would be $120 a year for five years and then jump to $180 a year. Critics, however, say the growth of the income tax for the program quickly exceeds the amount of the tax credit.