Posted on: Thursday, April 10, 2003

EDITORIAL
Big picture emerges on taxing, spending

It is that time at the Legislature when the myriad of individual bills and issues that confront lawmakers begin to take on patterns that will characterize the entire session. It comes not a moment too soon.

The big picture is starting to emerge because each house has considered, and in some cases returned, legislation that originated in the other house. This process puts the spotlight on issues or ideas that have at least some level of support in both houses.

There is perhaps no area where "big picture" thinking is more important than in the area of taxes and tax credits.

Literally dozens of ideas to raise taxes or give tax breaks to worthy enterprises were proposed this session. On their own, each has a level of attractiveness and support. But lawmakers must consider the overall impact of this constellation of individual bills and decide whether the state can afford them all.

From this perspective, that seems unlikely.

For instance, on the tax increase side, lawmakers have given tentative approval to a 12.5 percent increase in the general excise tax, presumably for education; a new county sales tax of up to 1 percent of all purchases; a $120-a-year long-term-care tax; and a $5 to $10 increase in the state vehicle registration tax.

Are legislators ready to accept the $400 million-a-year hit to the economy those tax increases represent? Doubtful.

On the other side of the ledger, there is talk of extended tax credits for hotel construction or renovation; a $75 million tax credit to the Ko Olina resort to build "attractions and educational facilities"; and a number of smaller credits including a lower-income food tax credit to partly offset the excise tax increase for low-income families.

In one area there is serious talk about shrinking existing tax credits: the high-tech area covered by Act 221. Lawmakers are considering making it available only to those who have made enough money to create a tax liability. That works against the idea of stimulating new, relatively high-risk ventures that rarely make a profit right off the bat.

Tighten it, yes, but keep the innovative, risk-taking spirit embodied in Act 221 alive.

As for the larger picture, legislators must add up the costs of the entire basket of tax increases and incentives and decide whether they make coherent policy sense.

These decisions must be guided both by impact on our state budget as well by less obvious policy implications. If we are going to raise the excise tax for education, will the money be tagged directly for new spending our school system desperately needs? Will the food tax credit be enough to offset the clearly regressive impact of an excise tax increase on our poorer families?

In terms of economic diversification, are we making the right signal by shrinking credits for high-tech innovation while adding or continuing credits for the visitor industry?

These and other questions will have to be tackled in the final weeks of the 2002 session. It would be a disservice to votes and taxpayers to ignore this bigger picture.