Posted on: Friday, March 21, 2003

EDITORIAL
Capitol's Honolulu tax plan could backfire

A fresh legislative proposal to give Honolulu a new taxing power has some attraction, but in the end the counties may regret having wished for this "gift."

The counties for years have asked the Legislature for authority to impose taxes other than the property tax.

Now, the state Senate has proposed giving Honolulu the authority to impose a 1 percent sales tax on top of the existing 4 percent state general excise tax.

The distinction here is that a sales tax is only imposed at the final point of sale while a general excise tax is applied to almost all transactions.

On its face, this would appear to be a reasonable response to longstanding county appeals for greater "home rule" authority, including greater autonomous control over their fiscal destiny.

But this offer will apparently come with a hook. Honolulu would get its taxing authority but would lose its share — currently around $31 million a year — of the transient accommodations tax, better known as the hotel room tax.

That money would be kept by the state and used in part to support grants-in-aid to the other three counties and to support the Hawai'i Tourism Authority.

And in fact, Senate Ways and Means Chairman Brian Taniguchi told Capitol Bureau reporter Lynda Arakawa that he would rather see the found money put back into the general treasury to offset a looming deficit.

If that happens, this becomes not much more than a shell game, in which the need to raise taxes to balance the state budget is imposed on the citizens of Honolulu. That is less than straightforward.

If the Legislature concludes it must raise taxes to balance the budget, the politically appropriate thing to do is to raise the taxes over which it has control.

Meanwhile, the conversation about allowing the counties greater tax flexibility should continue. While a sales tax is one option, it need not be the only one.

Another might be allowing the counties to create their own income tax surcharge, which could be collected along with the state income tax.

Unlike the sales tax, which is inherently regressive for local residents, an income tax can be made progressive through the use of brackets, exemptions and credits.