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Tuesday, November 25, 2014         

ON POLITICS


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Pension tax debacle could be opener to tax code overhaul

By Richard Borreca

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Taxing pensions is proving to be too hot a topic for Democrats in the Legislature.

Both House Speaker Calvin Say and Senate President Shan Tsutsui are now saying Gov. Neil Abercrombie's plan to sweep pension income into state income tax laws is a non-starter next year.

Abercrombie this year first proposed a tax that included all pension money from retirees earning more than $37,500 a year in adjusted gross income, then he and the Legislature raised the threshold, but the bill was blocked in the Senate.

After the session, Abercrombie said he planned to continue the fight next year, saying that it was only fair. Abercrombie reasons that if all taxpayers have to pay income tax on money earned in other retirement vehicles, then why not also tax pension money?

That reasoning struck a nerve with active and mobilized senior citizens who flooded the state AARP office, prompting its local state director, Barbara Kim Stanton, to lead a fight to kill the Abercrombie tax plan.

If Abercrombie is still smarting from his legislative thrashing at the hands of AARP he now threatens to "roll over" the politically powerful organization. Abercrombie, the liberal firebrand who represented Hawaii for 20 years in Congress, said "AARP is essentially a front for insurance companies," a description he did not include when he welcomed AARP support to help pass President Barack Obama's health care reform package two years ago.

Legislative leaders, however, are bowing out of the Abercrombie passion play.

"It is not going to fly. We came out with our best shot and the Senate wouldn't vote for it," said Say, who is shaping up as Abercrombie's most powerful legislative ally.

Even Say notes that Abercrombie will have to come back with a more thoughtful plan next year.

"If the governor does come back with the pension tax, it has to be well planned and strategically communicated both properly and wisely. And, he will have to do a full-court press," Say warned.

The Senate, which rejected both Abercrombie's pension tax plan and calls to raise the general excise tax, appears firmly against any pension raids.

"There were concerns over the threshold for the pension tax, and, quite frankly, I don't think we will even take it up unless the state review drops," Tsutsui said. "The pension tax proposal wasn't well received; philosophically, the Senate isn't in line with taxing pensions."

So if not from seniors, where is the state going to get more money next year? Say figures that APEC and other planned conventions will contribute to a rosy second quarter for the new fiscal year, but he still thinks Hawaii tax law is in need of a serious, thoughtful review.

He hopes the Legislature will put up the money for an outside group with no ties to the state to study our taxes and suggest ways to make them more equitable.

"We should look at property taxes and the counties and all the tax exemptions — what is the total impact," Say advises.

Tsutsui says there should be a concerted effort to study Hawaii tax law with a focus on ways to "export" more of the tax burden to visitors, "but not hurt the tourist industry."

While such an exported and tourist-industrypainless tax may not exist, Tsutsui says it also may be time to explore giving the counties the power to levy a sales tax.

Failing that, the Legislature can just have Abercrombie come back down to wave his arms and yell at everybody.

———

Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser.com.






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