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Public Employees Pay Sends Tax Relief Up in Smoke

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By Lowell L. Kalapa

If the headlines in the one of the Honolulu dailies didn’t make it clear enough, it has certainly been the talk at the state capitol – that upcoming collective bargaining agreements may eat up all of the resources of the state.
This comes at a time when lawmakers have just finished up the last round of hearings on various tax relief and tax increase measures. With the biennial budget on their plate coupled with the collective bargaining settlements, lawmakers will be hard pressed for revenues to meet all those demands.
The result may just be that instead of tax relief lawmakers may be looking at ways to raise revenues. As all taxpayers already know, lawmakers are contemplating giving the counties the option to raise the general excise tax rate either by a half or full percentage point. And while the talk has been that it will be designated for transportation gridlock solutions, local officials may look upon the idea as a way to raise money to cover those collective bargaining agreements.
Other proposals to increase taxes which are still under consideration at this stage of the legislative game include a hike in the tax on cigarettes and an increase in the conveyance tax for higher end transactions. In the case of the increase in the tax on cigarettes, lawmakers seem to rationalize the increase on the basis that this particular product is bad for one’s health and that by raising the tax on cigarettes the higher expense will force smokers to quit. That seems illogical if one argues that smoking is addictive and unless one truly wants to quit, those who smoke will continue to do so. What a higher tax and, therefore higher prices, will probably do will be to push smokers to find other sources for their fix. This means illegal and untaxed product will be pursued by smokers.
Not only does this mean that tax collections will be affected, but the amount that the state receives from the tobacco companies as part of the Master Settlement Agreement reached several years ago with the states and the companies will be affected. This is because the amount that each state receives is based on the consumption of cigarettes in that particular state. A migration of where smokers buy the product will affect the consumption numbers and therefore how much Hawaii receives under the Settlement.
While this column has covered proposals to increase the conveyance tax, it might be interesting to note that as lawmakers head into these last few days of the 2005 session, they are discovering the very point made earlier, that is, assuming the price threshold for a home purchased by a voting constituent is fallacious. Set at $600,000 in earlier versions of the proposal, it is now apparent that the median price home is quickly approaching that level both on Oahu as well as on the Neighbor Islands. Lawmakers are also beginning to admit that the conveyance tax rate on multimillion-dollar transactions may be hurting the affordable buyer when the property is later developed into an affordable home.
What will make the legislative drama all the more insane is that while scrounging for money to meet the collective bargaining settlements, will lawmakers still consider the host of tax incentives that have been paraded through the legislative halls? From tax credits for film productions to hotel construction and renovation, breaks for those in uniform as well as for landowners selling the fee interest in residential leaseholds, will these tax breaks be considered before the poor taxpayer?
Unfortunately, it appears that the poor taxpayer will end up on the cutting room floor again. Not only will there probably be no relief for you, the taxpayer, but there is every possibility that lawmakers will turn up the heat on taxpayers. Lawmakers will probably get away with it again because the taxpayer is too busy working two or more jobs just to try and make ends meet.
Taxpayers can no longer ignore what lawmakers are doing at the little square building because it will cost more to survive in Hawaii. Perhaps lawmakers believe the myth that one of our congressional delegates likes to promote in urging that the general excise tax rate be raised, that all those rich visitors will pick up the tab because there are 7 million of them and only 1 million of us residents.
Good try to blow more smoke. What matters is that we residents live in Hawaii 365 days a year and will have to pay the tax just to survive. Those 7 million visitors are here but for a few days and as the Tax Review Commission study notes, they only pay about 21.94% of the general excise tax. Of course, if you are living in the nation’s capital, you don’t have to contend with an increase in the general excise tax.

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