POSTED: 1:30 a.m. HST, Jun 17, 2011
With silence unusual for him, Gov. Neil Abercrombie earlier this week signed a series of tax bills into law. No ceremonial pens were passed out and no legislators were asked to witness the action, which amounted to the largest tax increase in Hawaii history.
The four bills are worth about $600 million for the state's next two-year budget.
If doing your taxes is already painful, just wait until next year.
In the past, Hawaii taxpayers could deduct state taxes from their income. Without going into the complicated math, Lowell Kalapa, president of the Hawaii Tax Foundation, said that for the well-heeled (individuals with $100,000 in adjusted gross income and couples with $200,000) the deduction could be worth hundreds if not thousands of dollars per year.
It also was a deduction that simply drove Abercrombie's administration batty.
"It is a fundamental tax policy to eliminate an absurd deduction allowed by the same source that is taxing the income," complained Frederick Pablo, state tax director, in testimony to the House Finance Committee.
"The current deduction is irrational and poor tax policy," Pablo said, adding that only five other states allow a tax deduction for state income taxes paid.
Dropping the deduction is worth $18 million a year. Abercrombie had wanted to phase out the deduction completely, which would have been worth $94 million and probably have caused the House Finance Committee to be hung in effigy.
The Legislature also claims that it will be able to pick up an extra $60 million a year by grabbing the special tax charged on rental cars and raising the rental surcharge to $7.50 per day for one year.
In his testimony on the rental car tax, Kalapa fumed: "While this measure is proposed to generate additional revenues for the state general fund and address the state's budgetary mess, it should be remembered that these revenue enhancements will not work unless state spending is curtailed."
That is the key to the current tension over tax increases: While the public may see a need for spending more to balance the budget, many also feel the state has to figure out ways to stop spending in the first place.
This reasoning goes against everything that Abercrombie has promised both in his campaign and in his administration. Although he has been inept in explaining why the state needs to spend more in order to preserve and increase programs he says are of value, Abercrombie has won over key members of the Legislature.
"The governor is trying to move the state in the right direction," says Rep. Marcus Oshiro, chairman of the House Finance Committee.
"If not now, then when — he is willing to make these decisions," Oshiro said.
Indeed, after being roundly criticized for his outburst attacking the NFL and state support for the Pro Bowl, Abercrombie essentially doubled down on his tirade, issuing a video press release saying, "It is time we got our priorities straight."
Instead of dismantling state social programs, said Abercrombie, Hawaii should invest money in programs to help children and poor families.
Oshiro said Abercrombie is "speaking truth to reason" and while not popular, "it is essential."
Of course, next year Abercrombie and the tax-raising incumbents will have to speak truth to voters and the judgment may be different.