Lawmakers say tax relief might not come till '08

By Gordon Y.K. Pang
Advertiser Capitol Bureau

Lawmakers this week are expected to keep alive two proposals that would provide some relief for taxpayers, although any kind of tax break that does move out likely won't be seen by the public for several years.

"I think we're going to have a hard time doing them, but ... I don't think we're not going to do any," said Senate Ways and Means Chairman Brian Taniguchi, D-10th (McCully, Manoa).

One tax-relief plan, now in the Senate, would establish an earned income tax credit for lower-end wage-earners. The other proposal, expected to be heard by the House Finance Committee today, would raise the standard deduction for those who don't itemize.

The state is currently at the bargaining table with three key public worker unions, and higher pay increases for employees might mean the state may have to wait until fiscal 2008, which begins July 1, 2007, to put any tax break into effect.

"If we do it prior to that, it could add to our deficit," Taniguchi said. "Mathematically, that's kind of how we have to go."

The Lingle administration has been pushing for an increase in the standard deduction, and Budget Director Georgina Kawamura reacted favorably to Taniguchi's suggestion that lawmakers could approve a tax break for 2008.

"I think that just the fact that they are continuing to talk about tax relief is a good thing," Kawamura said. "Therefore, planning for it in 2008 also keeps alive hopes that we may see tax relief."

House Finance Chairman Dwight Takamine, D-1st (N. Hilo, Hamakua, N. Kohala), said he will recommend to his committee that it advance the standard-deduction proposal.

Takamine is less optimistic than Taniguchi or Kawamura, however, that some form of tax relief will move out of the Legislature this year and is taking a "wait-and-see" attitude.

Lowell Kalapa, president of the Tax Foundation of Hawai'i, said lawmakers have themselves to blame if taxpayers do not receive a tax cut after the state Council on Revenues increased its projected revenue growth for state coffers from 8.8 percent to 10 percent in its latest economic forecast .

"The larger the pay increases, the less dollars you're going to have for other things," Kalapa said.

Lawmakers approved binding arbitration for Hawai'i Government Employee Association units, essentially guaranteeing white-collar government workers an increase, and have given tax credits to special interests from filmmakers to the construction industry.

"It's a matter of priorities and I guess taxpayers are the lower priority," he said.

Contracts with HGEA, the Hawai'i State Teachers Association and the United Public Workers which, collectively, comprise the bulk of the state employees, expire June 30.

Raises of between 1.5 percent to 4 percent, which would cost $39.1 million more next year and $83.8 million in ensuing years, have been offered by the state.

While HGEA officials are seeking an increase of 10 percent to 14 percent over two years for its workers, HSTA wants 15 percent raises over two years. UPW's demands have not been made public.

Russell Okata, HGEA executive director, said it's unfair for government officials to blame the lack of tax cuts on government raises when tax credits are handed out to special interests such as private developers. .

With the bustling economy, the state is suffering from a shortage of white-collar workers and a substantial increase is necessary to ensure the state can compete with the private sector for new employees, as well as retain current ones, Okata said.

Kawamura, the state budget director, said the state's budget will be able to absorb worker raises and a tax cut, but only if the pay increases are "reasonable."

"We definitely see that there's still room for the governor's tax proposal, or any kind of tax relief proposals," Kawamura said.

"The key is the reasonable pay raises," she said.

Taniguchi said lawmakers want to keep the two tax relief proposals alive until the end of the session when they have a clearer picture of the state's finances.

The deadline for the HGEA arbitration is April 15, and a decision on HSTA's negotiations, which are currently being aided by a federal mediator, is also expected about the same time. Talks with UPW are continuing.

Taniguchi said budget officials are warning that even if the state's offer of lower raises is accepted by the unions, it could result in a $30 million shortfall in the state's general fund budget in fiscal year 2007.

Takamine noted that negotiations with HGEA are in binding arbitration, which likely will mean the independent arbitrator's decision "probably is going to be someplace in between."

That would mean raises for HGEA members that would cost more than the estimated $18.4 million for the first year and $38.8 million in ensuing years that the administration is envisioning with its proposal.

Takamine stressed also that House members made other adjustments to the budget to address "quality-of-life" priorities.

For example, more money for education and anti-drug programs was put into the budget because House members thought the administration failed to address those issue in its budget submittal, he said.

Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.