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Ah, How Soon We Forget The Drunken Sailor

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By Lowell L. Kalapa

Have you noticed how intensely state officials are eyeing that growing state surplus? They are making their lists and checking them twice as they sharpen their focus on just how many ways they can spend it.

Spend it on education, shorten that list of backlogged maintenance projects, repair the aging infrastructure, or take care of the homeless. Opinions in some of the media seem to support this all out spending of the surplus with one editorial writer characterizing this spending as an “investment” in the future of Hawaii. How soon we forget that just over 15 years ago that was the very mind set of state officials faced with such a large surplus.

That period of wild spending was likened to a drunken sailor and was looked back upon by legislators with wistful hopes as they struggled to fix the economy with all sorts of gimmicks just prior to the 1998 re-election of the governor. At that time, policymakers acknowledged that one sure way to fix the economy was to reduce the heavy burden of taxes for which Hawaii had gained a national reputation. But alas, 1998 was the deepest of the state’s economic doldrums and lawmakers were shaking the bushes in search of every last dollar on which they could lay their hands. Wishing that they could do more to jump start the state economy, lawmakers approved changes to the state income tax rates and brackets for individuals, but held back making recommended changes to the state general excise tax and corporate income tax.

Even those changes to the net income tax had to be made over a period of four years because lawmakers wanted to continue to spend on programs while handing over slices of tax relief. The following year, lawmakers got around to reducing the pyramiding of the general excise tax on the purchase of services for resale, but even that tax relief had to be phased-in over seven years.

The point of the matter is that with the looming surplus, lawmakers should take this opportunity to effect some of the tax relief that they could only dream about seven years ago. Everybody knows that Hawaii has one of the highest tax burdens in the nation and continues to do so. So while there is a hefty surplus to counter any negative impact on tax revenues, lawmakers should take up the issue this session. 

But some political pundits counter, pointing out that lawmakers are not about to pass tax relief this year because the governor is up for re-election. Why should lawmakers allow the governor to take credit for tax relief only to help her get re-elected? If, in fact, that is what drives the debate over tax relief, they aren’t the only losers in this game. The other losers will be the taxpayers and prospects for continued economic prosperity. 

Although there is currently a Tax Review Commission undertaking an evaluation of the state’s tax structure, there is no want for recommendations made by past Commissions beginning with an increase in the standard deduction allowed under the net income tax. An increase in the standard deduction amount has been a continual mantra of the past Tax Review Commissions with the last adjustment being enacted in 1989. Taxpayers have gone without an increase for 17 years. 

As a result, more and more taxpayers undertake the tedious task of itemizing their deductions creating more paperwork for the department to handle and cross check as many would not have to itemize their deductions at the federal level because the standard deduction there is several time more than what the state law affords taxpayers. A higher standard deduction also means that many more low-income individuals probably would not have to file a state income tax return but for the tax credits granted to low-income individuals.

Another recommendation has been to restore the general excise tax credit to offset the regressivity of that tax. Because transaction taxes always take a larger percentage of a low-income individual’s budget, it means the low-income individual pays a larger slice of his or her income than a middle or high-income taxpayer. The credit should be inversely graduated with a larger credit for the very poor and should be phased out as income rises. 

Another tax credit is the low-income renter’s credit which was designed to offset the general excise tax imposed on rent paid. This tax credit was last increased in 1981 when it was raised from $30 to $50 per exemption claimed. It is obvious that at that amount, there is little or no relief for low-income renters.

Politics aside, taxpayers are long overdue for tax relief. Now if lawmakers would put aside their partisan differences and for once do something for taxpayers.

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