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Making The Tax Increase Hidden

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By Lowell L. Kalapa
(Released on 3/27/11)

Are taxpayers being set up? That is what it looks like as one follows the smoke and mirrors of the state legislature as it tries to grapple with the growing budget deficit.

By now the media has turned the spotlight on how lawmakers are in the process of heaping a huge tax increase on taxpayers by playing this game of taking away general excise tax exemptions that will affect the cost of living and doing business in Hawaii. And while the media spotlight focuses on that proposal, as well as the controversial proposal to tax the pension income of retirees, little attention is being paid to a not so subtle tax increase that will hit all taxpayers in the pocketbook.

After years of warning, the folks at the state highway department are finally telling lawmakers that the state highway fund is about to go belly up without an infusion of new resources. So the administration is proposing to hike the state’s vehicle weight tax and the state motor vehicle registration fee to shore up this special fund that is supposed to operate and maintain the state’s system of highways. While lawmakers did up the fuel tax on gasoline a few years ago, it was merely a stopgap measure of a penny per gallon hike.

Apparently lawmakers are a bit skittish about raising the fuel tax given the dramatic rise in the cost of gasoline at the pump. Even the state administration did not submit a proposal to raise the fuel tax on gasoline, instead opting for an increase in the state vehicle weight tax and the state vehicle registration fee. Since consumers are already unhappy about the cost of gasoline, elected officials don’t want to add fuel to the fire – so to speak – by proposing that the state increase that cost per gallon by a few more cents.

So hiking the weight tax and the registration fee would at least hide the tax increase, as vehicle owners would see the increase only when their vehicle’s registration comes up for renewal once a year. Even then the cost of registering a car and paying the weight taxes has become so mind numbing elected officials hope drivers won’t notice.

But the increase will be substantial. The weight tax would go up by a penny per pound so for a mid-size vehicle weighing 3,500 pounds, the annual increase would go from $26.25 to $61.25 or an increase of $35 per year. As for the vehicle registration fee, the increase would be $20 per vehicle per year, going from $25 per vehicle to $45. Although the proceeds from the increased amount of the fee would go into the state highway fund, motorists should remember that $5 of the current registration fee does not go for the maintenance of highways, but into a fund that pays for emergency medical services.

That latter point should not be missed by taxpayers that not all of the fees and taxes imposed on motor vehicles in the state goes toward the maintenance of the state highways. When lawmakers adopted the additional $5 levy on the state vehicle registration fee several years ago, the legislative logic seemed to follow the argument that since emergency medical services are needed when there are vehicular accidents, the tax should be imposed on vehicles to fund this service. No credit was given to the fact that emergency medical services are also needed by drowning victims, or expectant mothers, or even stranded hikers on one of the state’s hiking trails.

Although that logic made perfect sense at the time, the fallacy of that logic becomes even clearer as lawmakers find it difficult to raise the necessary revenues to keep the state’s highways maintained. One has only to ask whether or not the vehicle registration would have risen by only $15 instead of the proposed $20 had that $5 increase been directed to highway maintenance?

Taxpayers should also remember that the higher price of gasoline at the pump is due to the recently enacted $1 per barrel energy and food security tax on all petroleum products imported into the state. None of those receipts go to help maintain the state’s highways and, in fact, despite the sincerity with which lawmakers advocated for the measure last year, sixty cents out of every dollar of the tax on a barrel of petroleum products goes into the general fund and not to finance energy independence and food security.

Yes, elected officials need and want more of your tax dollars to close that budget gap and to provide the money they like to spend, but they are very careful to keep those tax increases hidden as they certainly don’t want to incite a taxpayer revolt.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.


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