With Thursday’s adjournment of the 2011 Legislature, Hawaii taxpayers may feel relieved that lawmakers chose not to raise the general excise tax or income tax for some pensioners. They should brace themselves, however, for higher prices in goods and services because of tax increases on businesses. For his part, Gov. Neil Abercrombie must now work and deliver on his "New Day" promise to find ways to streamline state government to reduce the onus on taxpaying individuals and companies.
After some mixed signals, Abercrombie rightly refused any increase in the general excise tax. And after much resistance from seniors, he had to give up on a $110 million plan to tax pension benefits for the wealthy. Balancing the budget, then, came via smaller, piecemeal revenue streams. For example, residents will have to pay more for vehicle registration, according to one bill on the governor’s desk: An increase to $45 from the current $25, while paltry on its own, becomes worrisome in the context of higher fuel prices and other rising costs of driving.
Users of certain services also can expect to pay more as the Legislature approved a bill to generate $600 million over two years by temporarily shelving the general excise tax exemption that has been provided to nearly two dozen kinds of economic activity. Some of those exemptions are obsolete, such as payments to independent sugar growers.
But others are likely to result in higher prices for consumers, such as removing the GET exemption for the loading and unloading of ships or aircraft. That is likely to "ripple through the entire economy, as nearly 96 percent of everything residents consume comes over the docks," noted the Tax Foundation of Hawaii.
The legislative session came to an end with a number of financial issues left hanging, which should prompt Abercrombie to call for a special session this summer. If he does so, the governor should make a priority of ending Medicare Part B reimbursements for retired Hawaii government employees at taxpayers’ expense, a proposal that appeared to be advancing until it quietly died at session’s end. Both the House and Senate approved a halt to reimbursements estimated at $41.7 million in fiscal year 2012 and $46.8 million the following year. In most of the private sector, of course, retirees pay for Part B Medicare out of their own pockets. The bills died in a House-Senate conference when conferees failed to resolve relatively minor differences.
In addition, legislators shamefully failed to approve measures to pay legal claims against the state and to pay for security costs for November’s Asia Pacific Economic Cooperation conference in Honolulu. Abercrombie recognizes that the death of the APEC bill is unacceptable because of the importance of the conference. Any year lawmakers are unable to finish the people’s business in the allotted 60-day session is discouraging, given the internal deadlines and public notice safesguards that aim to keep the process transparent. If one is needed, a special session should not engage in controversial arguments about issues such as tax credits for digital media and film productions and authorizing a Waikiki casino or any other form of legalizing gambling.
The governor and legislators will have a better idea of budgetary needs when the Council on Revenues issues its next report later this month. The University of Hawaii Economic Research Organization reported on Thursday that the state’s economy could gradually strengthen this year, despite the effect of Japan’s earthquake and tsunami on a reduction of eastbound travelers. That’s hopeful news —but even if true, fundamental structural changes in government operations are still needed to optimize state dollars.