Small GET increase the fairest way to shore up essential services
As we strive to rebuild a robust Hawai'i economy, a fundamental concern for lawmakers remains: how to address our budget deficit.
Since 2009, more than $1 billion has been cut from the cost of government. We have downsized, economized and streamlined. Further cuts jeopardize the health, safety and welfare of our citizens. The simple truth is that we cannot fund our state's business — maintaining vital programs and services — with our current diminished resources.
Last year, the Legislature closed a $2.2 billion budget gap through program cuts and targeted tax increases. Fifty percent of that shortfall came from cuts to programs, 10 percent through increased taxes, like the transient accommodations tax.
Then the governor added furloughs and layoffs to further reduce the deficit. Students have less time in school. There are fewer agricultural inspectors, and libraries have reduced hours. We find more homeless, hungry and mentally ill on the streets. The programs and staff to help the most vulnerable in our community have been cut or eliminated. We feel the impacts throughout the community and hear the outcry from the public over these cuts.
This year, we face even more economic challenges and hard decisions. How we can fulfill our constitutional duty to produce a balanced budget and address the urgent needs of our people? We must review our tax policies and examine ways to generate additional revenue without negatively impacting our struggling economy.
Recent proposals before our respective committees included eliminating tax exemptions for various businesses and imposing additional taxes on insurance premiums, including health insurance. Undoubtedly that would increase revenue, but the negative impact on local businesses and families would be too great.
For vulnerable businesses, targeted tax exemptions allow them to remain competitive, stay in business, and keep Hawai'i residents employed. Removing exemptions and imposing additional taxes would have further slowed our economy's recovery.
Recently, the Legislature fast-tracked a bill to relieve local businesses of the devastating effects of a sudden, large increase in unemployment insurance taxes. To suddenly increase the tax burden on these businesses would have wiped out those savings and increased expenses. Business closures and job losses would likely have resulted.
Increasing taxes on auto, life and health insurance premiums would further impact our working families. Undoubtedly those additional costs to insurers would be passed along to consumers. For health insurance, the increase was a staggering 6 to 12 percent over the next several years and would come out of the pockets of families already stretched to the limit by furloughs, layoffs, and cuts to educational and social programs. In some cases, families would choose to reduce or eliminate insurance coverage. That would mean more uninsured drivers and more families without adequate health care coverage.
By contrast, a temporary increase in the general excise tax would be broad-based and as fair as possible. We would all be asked to pay a bit more for the benefit of everyone. Hawai'i's 4 percent GET (with a half-point transit surcharge added on O'ahu) is among the lowest in the country. More important, over 30 percent of a GET increase will be paid for by visitors to our state. In contrast, virtually all of the impacts of the other tax proposals would be borne by Hawai'i residents alone.
Our proposal also included a state earned income tax credit, to mitigate the impact of the GET increase on lower-income taxpayers. Again, this was a matter of balance: The positive impact of keeping money in the pockets of vulnerable families outweighed the reduction in funding from the income tax credit. It also leverages a federal credit, helping lower income families even more.
Given the situation we're in, there is no perfect solution. Having imposed $1 billion in program reductions last year, we cannot contemplate similar cuts this year without threatening lasting damage to our community.
And faced with a number of revenue-generating alternatives, we need to select the proposal that brings the greatest benefit with the least probability of lasting negative effects on our economy and our citizens. To us, the choice was clear. A small, temporary increase in the general excise tax is the better solution.