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You Can Tax The Man Behind The Tree, But Don’t Tax Me

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By Lowell L. Kalapa
(Released on 12/02/07)

The holiday season conjures up visions of sugar plum fairies and other wishful, if not wistful, thoughts of what we would like to have and for some taxpayers the wish is that someone else pay their taxes so that they don’t have to pay any.

Unfortunately, while we would like to think that someone else could pay our taxes so we don’t have to pay any or pay very little, that’s not how it should work. It is not that we shouldn’t strive to reduce taxes, but our elected officials need to get the picture, along with some of the wistful taxpayers, that the amount of taxes we pay is driven directly by the amount those elected officials spend. So we hear homeowners grouse about their property tax assessments skyrocketing, blaming the rising values of their home on those “speculators.” But the real culprits in the real property game are the county officials who have the ability to lower real property tax rates to match the percentage growth in valuations. But they don’t, or if they do, it comes at the expense of nonresidential property tax rates which then go up and homeowners end up paying for the increased cost of county government anyway in the cost of the goods and services they buy from businesses.

So in this case, the man behind the tree turns out to be the homeowner himself. Believing that county officials provided tax relief, the homeowner turns around and blames the business for gouging him at the cash register when it is the county official who is stealing from the homeowner’s pocketbook.

Granted, elected officials are pandering to the political appeal of such actions. Take for example this past session’s efforts to extend the general excise tax exemption for alcohol-blended fuels otherwise known as gasohol. Originally enacted nearly 20 years ago to encourage the switch from purely fossil fuels to alcohol-blended fuels, the exemption made sense when consumers had a choice between pure fossil fuels and the blended fuel. The exemption allowed the cost of the blended fuel to be more price competitive as the cost of making the alcohol-based fuel is much more costly than the pure fossil fuel.

However, more than a year ago, the governor mandated that nearly all gasoline be blended with alcohol. The effect was that motor fuels no longer were subject to the general excise tax. Well, the general excise tax exemption sunsetted at the end of 2006 and motorists saw an immediate hike in the cost of fuel for their cars. There was outrage and while initially lawmakers did not appear to budge on the restoration of the general excise tax exemption, in the end, they extended the exemption for another two years.

The problem is that now that the use of gasohol is mandated, the incentive of the exemption is no longer needed. What the exemption does represent is political pandering to the driving public. What it also means is that there is a loss of nearly $40 million to the state treasury, $40 million that could go a long way to provide permanent, on-going relief to all taxpayers.

Why political pandering? It certainly isn’t out of sympathy for the motoring public being gouged with the high cost of fuel. If it were, then lawmakers would take a look at how the general excise tax affects our electric and gas bills as the cost of the 4-4.5% tax is affecting the average family’s monthly utility bills. Because the electric and gas companies purchase fuel oil to produce their respective products, those purchases are subject to the state general excise tax. And while one would think that the fuel oil used to produce the electricity that we consume would be taxed at the lesser wholesale rate of half a percent, the law interprets those purchases as being “consumed” by the utility and therefore taxed at the full retail rate of 4-4.5%.

So while we, as motorists, might be pleased with the political pandering at the pump, our electric and gas utility bills are getting socked with higher and higher amounts of general excise tax as the cost of fuel oil continues to grow. Thus, that “man behind the tree” is no one else than the taxpayer.

As the old saying goes, there is no such thing as a free lunch. If taxpayers truly want relief from our notorious claim to fame as being one of the highest taxed states per capita, then elected officials need to start at the spending end. Granting “tax relief” disguised as a shift in the tax burden merely hides the true cost of government, insures that those not so favored with a tax exemption end up paying more for government, and blurs the accountability for the high burden of taxes in Hawaii.

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