What to do with your tax dollars?
There's a lot of talk about tax relief around the Legislature this year, and no wonder.
The state treasury is awash in extra cash and as much as they would like to simply spend it all, our political leaders know that the voters will be mighty upset if they don't get some of it back.
But lawmakers also understand that this is an emotional, not a rational matter. One-on-one, most voters agree that they would prefer to see the money spent wisely on core state needs rather than scattered around in relatively small tax relief programs.
The final decisions on tax relief will come only after the Legislature understands, and pays for, public worker raises. No one will say it bluntly, but pay hikes for unionized state (and county) workers come first.
Part of the problem is that there is no true clarity over precisely how much there is in the surplus cash drawer.
Gov. Linda Lingle has been using the figure of $732 million, which is what was left over when the books were closed last year. This high figure helps her make the case that tax relief is long overdue.
But the governor's own financial plan predicts that, by the end of this budget year and the start of the next — when tax relief would kick in — the surplus will be down to $460 million. That's still a lot of dough, but markedly different than the $732 million figure.
The second problem will be in deciding whether to go with tax relief plans that are permanent or with one-time give-backs that won't tie the hands of future legislatures.
From a rational standpoint, the best approach is permanent tax changes. If our tax system is generating more cash than we can spend, it should be scaled back. That makes Lingle's idea of indexing the standard deduction, tax brackets and personal exemption to inflation an appealing one. No more "bracket creep" for us, thank you.
While this makes sense, lawmakers are always leery of permanently scaling back the tax dollars they have to spend. Nonetheless, Democrats are talking about an earned-income tax credit that would shelter the working poor. Presumably, that would be a permanent change, although the bottom line cost to the treasury would be considerably lower than some of the ideas Lingle has floated.
Probably the biggest buzzsaw awaiting Lingle's tax package down in the Legislature has to do with her call for elimination of the excise tax on basic food staples. For starters, there is the logistical problem of sorting out goods in the grocery basket and deciding which items will be taxed and which will not.
Also, this is a classic camel's nose in the tent for elimination of the tax on all food. Legislators resist this idea because food taxes are a substantial (and relatively stable) chunk of the overall excise tax take. Not only that, tourists pay a quarter or more of all excise taxes. Why give them a break, lawmakers ask.
If food taxes are a burden for the poor, give them a tax credit, the argument goes. It has been done before.