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The Honolulu Advertiser
Posted on: Wednesday, May 31, 2006

Time long overdue for rational tax plan

The latest City Council proposal on property taxes will bring some relief to homeowners, but it is still tinkering around the edges of this growing concern.

What's needed is a back-to-basics approach to budgeting and taxation, and a more comprehensive solution for those caught in the property tax squeeze.

Indeed by law (and common sense), the budget-and-tax system in Honolulu is supposed to work this way: The administration and the council decide what is needed in the next year's budget; then a property tax rate is set to meet those needs.

Concerns about windfalls and shortfalls should not really be part of the debate.

But particularly when values are rising sharply, as they have the past several years, the focus seems to be more on how the extra tax money can be spent and whether any of it should be sent back in the form of tax relief.

That's a backward approach. Yet that's where we are again this year.

The council Budget Committee will meet at 9 a.m. today to continue its discussion on the new spending and tax plan, including a fresh proposal to shift some of the burden from individual home and apartment owners to nonresidential properties, which largely means businesses.

This might ease some of the political pressure on the council, but in truth will do little to rationalize the tax structure.

Skyrocketing residential values have forced a shift in the overall burden from close to 50-50 to a system in which nonresidential properties pay only about a third of all property taxes collected.

So some balancing may be in order. But this does little to address the fundamental problem, which is that many homeowners particularly those on fixed incomes are nearing the point where they could be taxed out of their homes.

One-time discounts and a slight lowering of the rate now under consideration will feel good but will hardly resolve the matter. The council should consider more fundamental changes, such as a "circuit-breaker" system that ties property taxes to income, or a deferral program, in which taxes (other than small increases for inflation) are deferred until the property is sold or transferred.

Such relief can create fluctuations in year-to-year tax collections, but that problem could be mitigated by borrowing against future tax liabilities.

It's time to rationalize our budget and tax system by first insisting that clear budget priorities control how much taxes are collected, then by putting in place systems that guarantee no one will be taxed out of his or her home.