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The Honolulu Advertiser

Posted on: Monday, April 25, 2005

ISLAND VOICES

Legislature must reject increase in the GET

By Mac Lowson

Hawai'i voters should let their state senators and representatives know they oppose a seemingly innocuous tax bill now making its way through the Legislature — House Bill 1309, which seeks to raise the state general excise tax from its roughly 4 percent to 5 percent to allow counties to fund mass transit.

What looks like a meager one-percentage-point increase in the GET actually amounts to a 25 percent hike in our state's most lucrative and most regressive tax, in a state where the cost of living and tax burden are among the nation's highest.

Few of us would quietly accept an overnight 25 percent price increase by supermarkets. So why should we quietly accept a big tax hike? Unlike a retail price increase, in which we have no voice, as "consumers of government" in a democracy, we do have a voice and can stop this bill.

A family of four is already coping with a general excise tax burden of $3,585, according to the Tax Foundation of Hawai'i. If HB1309 is passed, the Foundation says that family can expect to pay an additional $900 on goods and services each year, bringing their total GET bill to nearly $4,500.

That's not exactly small change, as the bill's proponents would like us to believe.

We already live with some of the nation's highest prices. There's no question our geographic isolation and other factors increase the cost of goods. But the GET also adds to that burden.

That's because Hawai'i is the only state in the nation with a general excise tax levied on all goods and services sold at all levels, whether it's between businesses or by consumers in checkout lines. Elsewhere, sales taxes are paid only by consumers on final purchases. Our convoluted general excise tax is a cash cow for our state government. Its "pyramiding" effect adds substantial hidden costs to the price of everything we buy, whether it's a gallon of gas, a new pair of shoes or monthly rent.

How often have you heard people say we are lucky to live in Hawai'i because states like California and Nevada have much higher sales taxes? Actually, that's not really true. Because Hawai'i's general excise tax is also charged on transactions between businesses —and businesses pass that cost on to consumers — our tax bill is actually much higher.

Many find it hard to believe Hawai'i's GET is also applied to food and medical bills. Taxing these two essentials enables the GET to rake in the equivalent of a straight 12 percent sales tax. If food and medical bills were exempted — as they are in most other states — it would take a 16 percent straight sales tax, collected on goods, to generate the same revenue as our current 4 percent general excise tax.

Economic indicators show that as Hawai'i's economy grows stronger, inflation is once again beginning to creep into our local economy. Prices in Hawai'i rose 3.3 percent in the first half of 2004 over the same period in 2003, according to the U.S. Bureau of Labor Statistics, the biggest jump since 1990. A 25 percent GET increase will only raise prices higher.

The GET is hardest on those most vulnerable — senior citizens, single parents, poor and working-class families, and the unemployed. We all need to buy basic necessities, but for poor families, these purchases take a much bigger bite out of their limited income. Raising the GET makes it even harder for our least-advantaged neighbors to make ends meet.

Yet despite consistent nonpartisan research that shows excise taxes hit the poor harder than any other state or federal tax, some lawmakers seem blind to this fact.

HB1309 could also lead to a fiscal nightmare. The bill gives counties the right to collect the GET increase in order to fund public transportation systems, a worthy goal. Provisions in the bill call for the money collected to be paid into the state treasury each month and that the money be placed in special accounts to be administered and distributed by the state director of finance.

But there's no guarantee any money raised by a GET increase will be used for its intended purpose. Let's not forget the track record both the state and City & County of Honolulu have compiled of raiding special funds to balance their budgets.

During the state's fiscal crisis in the 1990s, almost all special funds were raided. State records show that between 1996 and 2004, lawmakers took $155 million from the state highway fund alone and transferred it to the general fund. During the past decade, the city has taken more than $100 million from its special sewer fund to pay for general fund expenses, which has left O'ahu with an aging sewer system that overflows during heavy rains, dumping thousands of gallons of raw sewage into our streets and ocean.

It's surprising how little coverage the media have given to the proposed general excise tax hike. As with our troubled container recycling law, if the GET hike is passed, many people may awaken only afterward. Let's not wait till then. The time to act is now. Let's tell our lawmakers this is simply a bad bill.

Mac Lowson is president of Hawai'i Association of Realtors.