A crowd of residents and businesses opposed to raising Hawaii’s largest tax told senators Wednesday it would damage the economy and increase the islands’ already high cost of living.
The Senate Ways and Means Committee scheduled a Thursday vote on hiking the state’s general excise tax after hearing three hours of testimony during a public hearing in the Capitol auditorium.
"When you put on this tax, you know it’s going to cause everything to go up. A bag of rice, a loaf of bread, is going to go up," Bobbie Slater of Honolulu told the committee.
The measure would increase the general excise tax 1 percentage point and eliminate several business exemptions as a way to help balance a budget shortfall projected at $1.3 billion over the next two years.
The general excise tax is currently levied on most transactions at a rate of 4 percent on neighbor islands and 4.5 percent on Oahu, which pays the higher amount for its planned rail line.
Most testifiers urged lawmakers to kill the tax increase idea, but some supported it as a way to spread the cost of maintaining government services across the state. Opponents outnumbered supporters 258 to 184 in written testimony from individuals.
"Nobody wants to pay increased taxes, but how do we take care of the needs of the people?" the Rev. Bob Nakata asked senators, saying government safety net services need to be paid for. "The people are hurting by the cuts that you have been forced to impose."
Hawaii charges a general excise tax, the state’s version of a sales tax, on most transactions in the state. It’s charged on both goods and services, and non-residents shoulder about one-third of its burden.
Besides the increase to the GET, the tax legislation also would boost tax credits to protect the poor from its impact, including higher food credits, renters credits, standard deductions and child care credits. The new tax would generate $388 million next fiscal year and $622 million the following year for the state government before accounting for the tax breaks, which total about $100 million over the two-year period.
"Us common folks have been taxed to death," testified Kawika Crowley, who said personal financial difficulties caused him to live out of his van in Kaneohe for three years. "There’s got to be some major cuts done before you take it out on us common folk again."
Members of the business community fought the proposal to eliminate their general excise tax exemptions, saying the economy would suffer and workers would lose their jobs. The exemption part of the bill would raise about $200 million a year.
Hawaiian Airlines said its exemption for leasing aircraft and engines puts it on an even footing with air carriers from outside the state that don’t pay the tax. General contractors argued the cost of homes would go up if subcontractors also have to pay the tax, which they said amounts to double taxation.
"Eliminating this exemption would have a devastating effect on our industry and the public because the cost of this tax would eventually be passed on," said Glenn Nohara of the General Contractors Association of Hawaii. "We should not be adding any costs that would further dampen construction."
The Legislature also is considering many other tax measures, but they won’t raise enough money to balance the state’s budget. Those proposals include taxing pensions for the first time, raising alcohol taxes, limiting county shares of hotel tax money, repealing state income tax deductions and raising taxes on timeshares.
Spending cuts in the Senate’s version of the budget, which passed out of its committee Tuesday, save the state about $654 million, leaving the lawmakers to find a similar amount of money in tax hikes to raise the $1.3 billion needed for a balanced budget.