The state House is considering a measure that would temporarily increase general excise and use taxes by a percentage point, to 5 percent, in an effort to narrow the state's $1.2 billion budget deficit.

The net effect on O'ahu would be an excise tax of 5.5 percent, since O'ahu businesses pay an additional half-percentage point for the rail transit surcharge.

House Bill 2876 was introduced by House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), and passed first reading. It was heard by the House Finance Committee last night.

If approved, the measure would raise general excise and use taxes effective July 1 through the end of 2015. Committee staff and the state Department of Taxation estimate the tax hike would generate $400 million to $500 million a year in new revenue.

In addition to the tax increase, the bill calls for a capital goods excise tax credit increase for residents from 4 percent to 5 percent, as well as an increase in the refundable food/excise tax credit by $10 per qualified exemption.

For example, tax filers with an adjusted gross income of $40,000 to $50,000 would see a tax credit of $35, compared with the current $25 credit.

State general excise and use taxes are the largest category of collections and have been on the decline the past year.

During the first seven months of the fiscal year, which ends June 30, tax collections in this category decreased by 6.7 percent, compared with the same period last year.

Overall, state general fund tax collections over the first seven months were down 5.4 percent from last year.

This isn't the first time the Legislature has proposed to increase the general excise and use taxes to make up a budget deficit.

Last year, the state Senate passed a measure that would have increased the general excise tax by a percentage point to help close the budget deficit and to fund public education. The measure also would have provided tax breaks for low- and middle-income residents.

The measure failed to make it out of the House, however. At the time, Say said there was little enthusiasm for the measure, calling it broad and regressive.