By Jerry Burris
Advertiser Editorial Editor

Remember that "Largest Tax Cut in Hawai'i History" that was left behind as a gift for all of us from former Gov. Ben Cayetano and his Democratic colleagues in the Legislature?

Poof! Gone! About to hit the highway, in favor of a similarly-sized tax hike designed to dig us out of a difficult budget hole.

It's a classic case of lawmakers giving and then taking. The difficulty is, who gets the giving and who gets the taking?

That is, what are the human and policy impacts of the tax changes that are sweeping back and forth across the local landscape? One hopes someone at the Legislature is thinking about all this.

The State Senate has passed, and the House may soon take up, a proposal to increase the general excise tax from 4 percent (four cents on the dollar) to 4.5 percent.

Normally, one would think this idea has little chance at all. After all, what politician likes to increase taxes?

The problem is that the Legislature faces a severe budget shortfall, and all the easy cuts to spending have already been made. One theory is that the Democratically controlled Legislature will pass the tax hike, build a budget around it, and then let Republican Gov. Linda Lingle deal with the fallout.

Either she accepts the tax increase or she has to make the necessary spending cuts herself. Either way, it would amount to a nice handoff from the Legislature.

But the real issue is the philosophical, political underpinnings of this proposal to increase excise taxes. If the bill goes through, it would "replace" probably 80 percent of the tax losses created by Cayetano's plan.

And more to the point, it would make up tax "losses" in the income tax system with tax "gains" out of the excise tax system. In other words, there would be hundreds of millions of dollars in tax liability transferred from income tax payers (by definition, the "haves" of society) to excise tax payers (who include both haves and have-nots). Everyone, no matter how poor, pays excise tax whenever they buy anything.

Is this good public policy?

It is estimated that the tax "cost" to the state — in constant dollars — of the Cayetano plan would be around $258 million when fully implemented. There is an argument that because of the "dynamic" effect of these cuts (dollars not taxed are spent and invested) that the economy would enjoy stimulation effects. Perhaps.

The excise tax hike would generate around $200 million, or roughly four-fifths of what the income tax cut gave back. Some $80 million would be set aside for education, another $45 million or so returned in low income credits and the rest deposited in the general fund.

And yes, unlike the income tax, tourists would pick up around 20 percent of the burden (if they continue to come). But still, the bottom line is a shift of the tax burden from one class (income tax payers) to another (point-of-sale excise tax payers).

If this plan moves forward, there should be more attention paid to the social, as well as the pure bookkeeping, impacts of this idea.

Reach Jerry Burris through letters@honoluluadvertiser.com.

Correction:The State Senate has passed, and the House may soon take up, a proposal to raise the general excise tax from 4 percent to 4.5 percent. A previous version of this column reversed that order.