SUBJECT: MISCELLANEOUS, INCOME, GENERAL EXCISE, Indefinitely Extend County Surcharge on State Tax, Low Income Tax Credit, GET Increase
BILL NUMBER: SB 1183, SD-1
INTRODUCED BY: Senate Committees on Transportation and Energy and Public Safety, Intergovernmental, and Military Affairs
EXECUTIVE SUMMARY: This bill, while nominally allowing the City & County of Honolulu to adopt the county surcharge on the general excise tax indefinitely and allowing the other counties to adopt a similar surcharge, fundamentally changes the game by enacting a statewide increase on general excise and use taxes to fund a low-income credit in the income tax system, ostensibly to make up for the regressive nature of the GET.
Lawmakers need to keep in mind that the surcharge is the County’s money. Although the State provided the vehicle, the County had to, and did, adopt an ordinance imposing tax (to be collected through the GET system), and the tax is only imposed on county taxpayers and businesses. Ten percent of this money is now skimmed off the top to go directly to the State general fund, and various drafts of this and related measures earmarked that money for statewide programs ranging from the homeless to state highways and bridges. The State could perhaps keep what it takes to collect the money, but further diversion of county money to statewide programs and services obviously benefits the state at the expense of county taxpayers, which raises serious constitutional questions.
Even the bill as originally introduced presents many policy issues, including the scope of what the tax is supposed to cover. Policymakers need to decide exactly what it is they are funding, and the extent to which they are willing to write the counties a blank check. If it is to fund operational and maintenance costs, which would be the only rationale that would justify a perpetual extension, the statute needs to be amended to permit this, and taxpayers may well conclude that they have been lied to when the tax was adopted. The current draft throws numerous other issues into the mix, including roads in limbo, ownership of lands on which DOE schools sit, HCDA parcels, tax relief for the poor, and a general GET increase to fund educational, transportation, affordable housing, and elderly care needs.
We suggest that the bill focus on the task at hand, namely the Honolulu rail project, and give the City & County of Honolulu (and other counties that may be thinking of doing something similar) clear guidance on the extent to which this State will permit the GET to be bent out of shape for this purpose.