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State lawmakers advance tax hike proposals to close budget gap

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Hawaii legislators advanced a wide variety of tax hikes today, which together form the outline of a plan for the state to significantly narrow its budget deficit.

Pension income would be taxed for the first time, but only the wealthy would pay. Tax exemptions granted to a variety of businesses would be phased out. Liquor levies would increase 20 percent. Itemized deductions would be capped.

Combined, more than 20 revenue bills passed by the Hawaii House of Representatives would raise about $629 million over the next two years as the state faces a projected $700 million shortfall during that time.

Lawmakers stayed away from raising Hawaii’s general excise tax, the state’s 4 percent version of a sales tax charged on most goods and services.

“We’re trying to make sure we don’t have any broad-based tax impact, because we do realize that this is still yet a somewhat fragile economy,” said House Majority Leader Blake Oshiro (D, Aiea-Halawa).

In all, the House and Senate approved hundreds of bills before its session midpoint deadline for measures to pass their originating chamber and cross to the opposite chamber for consideration.

The plan to start taxing pension income received the most debate, with minority Republicans unanimously opposing the bill, which passed the House on a 37-13 vote. The bill would tax pensions of individuals with total federal adjusted gross income exceeding $100,000 annually, or couples making more than $200,000 a year.

“It was a promise made. … They went through their lives calculating out that they would have a pension,” said Rep. Corrine Ching (R, Nuuanu-Liliha). “They made choices in such a way as to arrange their budget thinking they would have this.”

Democrats supporting the tax countered that few people in the private sector still receive pensions, and it was not fair to tax Social Security and 401(k) funds while exempting pension income.

“We’ve got to tell young people that are entering the world of employment that what you see today isn’t possibly going to look the same 30 or 40 years from now when they get to retirement age,” said Rep. Cindy Evans (D, Makalawena-Waimea). “There’s no such thing as security. You’ve got to plan for yourself.”

The pension tax and the elimination of the state tax deduction for individuals making more than $100,000 or couples earning $200,000 would raise a combined $35 million a year.

The biggest-ticket item passed by the House would raise $67 million next year and $192 million the following year, by gradually ending general excise tax exemptions on businesses including airlines, subcontractors and sub-leasers. Those businesses would begin paying the tax at a 2 percent rate next fiscal year, and then it would gradually rise to the standard 4 percent rate.

Taxes alone won’t raise enough money to balance the budget, and some proposals passed today are likely to encounter resistance as the legislative session progresses.

Besides taxes, lawmakers also are counting on 5 percent labor savings that Democratic Gov. Neil Abercrombie is seeking in negotiations with public employee labor unions, which would save the state $88 million a year.

Legislators said they intend to cut the size of government to raise many millions of dollars more, although that amount won’t be clear until the budget advances through the process. Likely targets include Medicaid and welfare programs worth about $53 million, according to Abercrombie’s budget proposal.

“There needs to be additional labor savings. The deficit is too big to close purely on revenue or budget cutting,” said Senate Ways and Means Committee Chairman David Ige (D, Aiea-Pearl City).

Republicans, who control only nine of 76 legislative seats, said Democrats are raising taxes too much and reducing the size of government by too little.

“We don’t have a revenue problem, we have a spending problem,” said House Minority Leader Gene Ward (R, Kalama Valley-Hawaii Kai). “We have grown government, and we don’t have the money to pay for it.”

 

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