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Kick Me for Forgetting

posted in: Weekly Commentary 0
By Lowell L. Kalapa
Summer is a great time for cleaning out files, with the legislature between session and this year with most legislators out campaigning, there is more spare time to go through notes and old papers.

What was interesting was the number of times that lawmakers or administration officials attempted to raise the general excise tax. Up until 1980, legislators dared not to let the words “tax increase” cross their lips as a major tax increase had taken place in 1965 when the state – in the midst of the post-statehood boom – needed cash to help meet infrastruture needs. That tax increase resulting in a 17.5% hike in nearly all tax rates. The impact was substantial.

So substantial that the state government engine roared with growth that by the time the early 1970’s rolled around, the economy had overheated and began to slide into a noticeable stall. By 1973, the growth in government had outpaced the economy and the possibility of facing a shortfall in revenues resulted in a proposal to again increase tax rates across the board.

However, cooler heads prevailed in the 1973 session and the legislature failed to approve the tax hike. But that first brush with a substantial tax hike on the heels of an even larger tax increase made lawmakers gun-shy for a few years. It was not until 1980 that talk of increasing taxes experienced a resurgence.

The proposal called for increasing the maximum income tax rate from 11% to 15% and upping the general excise tax rate from 4% to 5%. All of this was to bring about reform and provide tax relief for the purchase of a new residence. For good measure, an exemption for food and drugs was also tossed into the mix. The chair of the powerfull Ways & Means Committee went on the road to convince taxpayers, both individuals and businesses, that this made good sense because it would shift the tax burden to high income individuals. Fortunately, public pressure came to bear and the increase was killed.

A few years later, amidst a slump in the visitor industry, Governor Ariyoshi convened a Tourism Conference to search for ways to improve the quality of the industry and to find ways to better promote the industry. Since the hotel industry had been resistant to imposing a separate room tax on hotel revenues, another source of funding had to be found to provide increased funding for visitor promotion. One of the committees directed to look for funding sources was headed by a leading bank economist who decided that the best source was the general excise tax.

As a result, the committee was asked to recommend an increase in the general excise tax rate with a tax credit to mitigate the displeasure of residents. While the proposal was adopted, it was not without dissent. Although the proposal had the support of major forces in the business community, the 1985 legislature refused to entertain the idea of raising the general excise tax.

In the same year, the Finance Committee chair trotted out a proposal to raise the general excise tax to 6% as a means of providing substantial tax relief to homeowners by completely exempting homeowners from paying the real property tax by increasing the grants to the counties. This idea also got a cool welcome although various “supporters” were cajoled into testifying on behalf of the bill.

Most readers will remember the more recent attempts to raise the general excise tax such as the punting of the legislature to the counties to raise the excise tax to fund mass transit in 1990 and of course this year’s attempt to “revitalize” the economy by again raising the general excise tax rate.

When will politicians – and more recently some business people – ever learn that the general excise tax is one of the major contributors to the high cost of living and doing business in the state. When will the politicians ever learn that Hawaii does not have a revenue problem and that the answer is not in raising taxes?

Maybe we all need a kick in the shins to remind ourselves or better yet, perhaps those politicians need a kick.

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