Tax increase proposal dropped by Senate

By Lynda Arakawa
Advertiser Capitol Bureau

The Senate yesterday shelved its proposal to raise the general excise tax after House leaders refused to consider the idea, and offered a tradeoff to build support for tightening eligibility requirements on high-tech tax credits.

Without the tax increase, said Senate President Robert Bunda, "we have a gaping hole." He said he expected the state Council on Revenues to lower its revenue projections at its May 9 meeting, putting the state into deeper financial trouble.

"We have looked into every corner, every nook and cranny, to try and find monies, from special funds to ... scrutinizing everybody's budget," Bunda said. "I think we've kind of exhausted our search. So for the House, if they have additional revenues that we could probably help balance the budget with, tell us, and we'd be glad to negotiate."

The Senate leadership wanted to raise the general excise tax from 4 percent to 4.5 percent to raise money for education programs. The proposal also would have provided a food tax credit aimed at low-income residents.

House leaders said they did not want to raise taxes, and lawmakers could balance the budget without it.

Bunda, D-22nd (North Shore, Wahiawa), offered yesterday to extend the high-tech tax credit, also known as Act 221, beyond its 2005 expiration date, in exchange for limiting the scope of the law.

The Senate and Gov. Linda Lingle support amending that law, including removing language that the tax credit be "liberally construed."

The amendments also change the 20 percent refundable credit on research activities to a nonrefundable credit applicable only to increased research activities. Supporters in the Senate say the changes would save the state about $55 million.

Bunda noted remarks by the state Council on Revenues that the tax credits were hampering the state's revenue health, and that tightening the law might keep the council from lowering its projections.

But House Vice Speaker Sylvia Luke, D-26th (Punchbowl, Pacific Heights, Nu'uanu Valley), said the House did not want to change Act 221, and more public input was needed on the issue.

Lingle proposed amending Act 221 halfway through the session in response to the Council's revised revenue projections in March.

"It needs to be aired out a little bit more," Luke said of the amendments. "On an issue like this, which has major changes, we need to have more public input, more involvement. And I guess that's kind of our big concern, and that's why we wanted to hold the line."

Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or at 525-8070.