STATE OF THE STATE
Budget realities derail tax-cut promise
By Lynda Arakawa
Advertiser Capitol Bureau
Gov. Linda Lingle's State of the State address reflected a recognition of the cold economic realities of balancing the state budget when she put aside, at least for now, one of her most prominent campaign promises.
Richard Ambo • The Honolulu Advertiser
Throughout her campaign, Lingle leaned heavily on her promise to cut the tax on food and medical services, a longtime Republican favorite. She said it was bad public policy to tax families and the sick and injured.
Rep. Brian Schatz, chatting with Sen. Colleen Hanabusa, said yesterday after Gov. Linda Lingle's address that he was glad Lingle recognized that some of her proposals, such as eliminating the tax on food and medical services, "weren't realistic in the context of a balanced financial plan."
But yesterday, her 50th day in office, she put that promise aside.
"Major new initiatives and substantial tax cuts must wait until fiscal discipline has been restored to state government and until our economy has improved," she said. "When the economy improves I will ask you to repeal the tax on food and medical services."
Such a decision appears to blunt Republican lawmakers' own arguments for the cuts and recast the subject into a budget issue rather than a political one.
Some Democrats also say Lingle's decision validates their position over the years that the state couldn't afford to give up so much revenue. Proposals to eliminate the excise tax on food and medical services were voted down along partisan lines on the House floor two years ago, with the Democrats saying it would cost the state too much money.
Eliminating the tax on food and medical services would cost the state about $150 million a year.
"It's clear that there seems to be a discrepancy between campaign promises and the realities that the budget is presenting," said House Majority Whip Brian Schatz, D-25th (Makiki, Tantalus). "And we're glad that the governor has recognized that some of her proposals weren't realistic in the context of a balanced financial plan. We've been cutting taxes over the last six years but it has to be done in the context of what's affordable and what is balanced within the state's financial plan.
"We're just happy that the governor has moved off of her original campaign promise and we think that it represents a new understanding of the budget situation."
Rep. Marcus Oshiro, D-39th (Wahiawa), said he was surprised Lingle didn't push forward with the tax cut proposal.
"But maybe the reality of balancing the budget is finally sinking in," he said. "I think it supports the way we have handled issues in the past. It certainly validates our position that you need to balance the budget before you can reduce any taxes."
Lingle had campaigned to eliminate the excise tax on medical services and institute a food tax credit by which everyone would pay the tax on food, but Hawai'i residents could get a credit on their income taxes. She told voters she would pay for such measures by cutting government waste, ending duplication of services between state and county governments and expanding the economy.
After her speech, Lingle told reporters it is important to understand "that we have a very tough road ahead."
"Things are not going to happen overnight," she said. "They're going to take time. When you campaign, and when you do as I did and lay out your ideas as in a formalized booklet and let people know what you hope to accomplish in your four years, that means some of the things may take four years, some may take four months. Some began on the very first day that I got here, which was opening up government to the public by how I selected my directors of the departments. It will depend on what the issue is as far as how long it takes."
Still, Lingle's acknowledgment that the state cannot afford her tax initiatives at this time appears to weaken the position of House and Senate Republicans, who just last week said the state can comfortably absorb the tax cuts by eliminating state government vacancies and by transferring special fund money to the state general treasury.
Republicans in the Legislature have criticized Democrats for not granting taxpayers the exemption on the tax on food and medical services, saying cutting the taxes would put more money into people's pockets, prompting more economic activity and increased tax revenues.
Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Portlock), waved away any concern about Lingle's decision to postpone repealing the tax.
"She said she's going to do it, and that's a far cry from what we had in the past with Democrats continuing to tax the sick and the hungry," he said.
"You gotta remember that she is in a boat ... that has been steaming in one direction for 40 years with tremendous amount of momentum and she's turning the ship of the state around. ... I suspect in a couple of sessions we will see some definitive tax cuts including tax on the sick and the hungry. I'm very enthused about it."
Advertiser Staff Writer Gordon Y.K. Pang contributed to this report. Reach Lynda Arakawa at larakawa@honoluluadvertiser.com or at 525-8070.
