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Thursday, April 17, 2014         

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House leader rejects tax increase

The governor and top senators see an excise tax hike as an option

By Derrick DePledge

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State House Speaker Calvin Say has dismissed a general excise tax increase as part of the solution to balance the budget, but it has been discussed as an option by Gov. Neil Abercrombie and state Senate leaders.

The House is preparing to move nearly two dozen bills to the state Senate this week that would generate revenue or reduce benefit costs to help close a projected two-year deficit of $700 million.

The House Finance Committee is also working on its draft of the budget that the House will send over to the Senate this month.

"At this point in time, I'm not considering a general excise tax," Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) said Friday.

Abercrombie, at a private breakfast meeting with Senate leaders last week, said he would consider a general excise tax increase if lawmakers believe one is necessary. Several people familiar with the meeting said it was the governor, and not senators, who brought up a GET increase.

State Senate Majority Leader Brickwood Galuteria (D, Downtown-Waikiki) said Friday that he would poll senators on a GET increase and other revenue options to balance the budget.

"I'll probably begin polling members about that and a bunch of other things, as well," he said, cautioning that there is no formal move toward a GET increase. "That's one of them."

WHILE THE HOUSE will give the Senate enough revenue options, the single largest — impose a GET for several years on several business activities now exempt from the tax — does not have the support of several key senators. If the Senate were to reject the idea, senators would have to come up with an alternative.

A 1 percentage point increase in the general excise tax could generate more than $500 million a year — enough, on paper, to close the two-year deficit. But lawmakers would likely include exemptions or tax credits to spare poor people from the regressive tax. The exemptions and tax credits would reduce the amount that could be used for the deficit, one reason the governor and others have suggested previously that a GET option alone may not be enough to end the state's financial troubles.

Two Senate committees approved a GET increase last year, but Senate leaders went with other options to balance the budget. The Senate approved a GET increase in 2009 that included exemptions for food and medical expenses, tax credits and funding for public education. The House did not move the bill.

Galuteria said he doubts the Senate would even think about a GET increase without similar exemptions.

The general excise tax is the largest single source of state revenue. The 4 percent tax has not been raised statewide since 1965, but lawmakers gave counties the authority to add a surcharge for mass transit, and Oahu added a 0.5 percentage point surcharge for the Honolulu rail project.

Tax experts have described the GET as effective because of its broad base and low rate. But businesses have complained about its "pyramid effect," since, unlike a sales tax, it is applied on most economic transactions.

ABERCROMBIE SAID during his campaign for governor last year that he would not raise the GET if elected. At a Chamber of Commerce of Hawaii forum before the September primary, Abercrombie sought to put distance between himself and his opponent, then-Honolulu Mayor Mufi Hannemann, who had said he would not raise the GET initially but may consider it in the future. Abercrombie said that "without equivocation" he would not raise the GET. He went even further in a KITV interview after the forum, promising never to raise the GET as governor.

In December, after releasing his initial budget draft, Abercrombie again told reporters he would not raise the GET.

Last month, however, the governor said he would consider a GET increase if approved by lawmakers.

Pressed on the issue when he released his updated budget draft, Abercrombie described a GET increase as the worst option because it is regressive and could undermine business expansion and economic recovery.

"I suspect that that will be something that comes up time after time after time," Abercrombie said when asked again about the GET on Thursday. "My thought always has been and always is that we need structural changes."

Asked specifically whether he has changed his position, he said: "No. But we'll just see what transpires. There's always variations on themes that come up. And we have to see how that manifests itself."

Say said if the Senate does not like the House's revenue options, "they have to send us back something that will balance the budget."

"And I don't think they have the will or the courage to send a GET increase," he said.






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