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Friday, December 19, 2014         

ON POLITICS


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As deficit grows, GET increase looks more attractive

By Richard Borreca

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There's more than one way to cook up a budget.

Call it the political Rashomon effect. This is the time of the year when the House and Senate money leaders stare at the same deficit problem and see widely different solutions.

The state's two-year deficit, growing worse with every meeting of the Council on Revenues, now hovers at more than $966 million. Already the House has fashioned a budget chopping out much of Gov. Neil Abercrombie's add-ons, including welfare assistance, early childhood education and assistance for immigrant groups.

Still much more money is needed, so the House is looking at a variety of small nibbles, hoping that if they keep up steady chomping, it will add up to tax bites worth more than $200 million.

The biggest part of the plan to get more money is halting a series of general excise tax exemptions. Just the GET exemption for subcontractors is worth an estimated $120 million a year.

Because each one of those tax exemptions targets a specific group of businesses, it comes with its own set of lobbyists, making it even more difficult to move forward.

The Senate hears the House idea and sees a pyramid.

Sen. David Ige, Ways and Means Committee chairman, says that taxing the subcontractors just adds to the pyramiding effect of the GET.

In other words, if the state gets another 4 percent whenever a sub buys and sells a window, the total tax to the home buyer goes up.

"It is focused on having business pay more; the House proposal is injecting new pyramiding into the system," said Ige.

Instead, the Senate wants to partially balance the budget by taking the next couple of years' worth of tax collections designated for the Honolulu rail project.

In return, the state would then float bonds and give the bond money to the city to keep the rail project on track.

"This would go a long way to making up the deficit," Ige said.

The House is dubious.

"We are not supportive of the Senate plan to take the rail money; we are very skeptical of this," said Rep. Blake Oshiro, House Democratic leader.

"Sen. (Daniel K.) Inouye has indicated strong, strong, strong concerns about doing that. ... We worry that the feds will start questioning why we are taking away the rail's source of funding.

"Playing around with this is extremely dangerous," Oshiro says.

But Ige notes that one of the state's big rail boosters, Gov. Abercrombie, last week told the Senate Democrats that he would not oppose the tax-transfer plan, if the feds don't object.

Obviously, somewhere between taxing subcontractors and refinancing the rail project, there has to be another plan.

The bad news on tax projections means the state needs to get more money at a faster rate in a shorter period of time.

That means the ruthless efficiency of the excise tax becomes an attribute and the ability of the Legislature and the governor to resist becomes all the more difficult.

Richard Borreca writes on politics every Tuesday, Friday and Sunday. Reach him at rborreca@staradvertiser.com






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