The Committee on Economic Development & Technology (EDT) and the Committee on Commerce & Consumer Protection (CPN) replaced a tax measure intended to reduce decades-old tax breaks for certain special interests, in favor of a 25 percent hike in the state general excise tax (GET) paid by every resident and business in Hawai‘i.
The proposed tax hike is one of the largest increases in state history. Raising the state GET from 4 percent to 5 percent – a 25 percent increase – will significantly impede Hawai‘i's economic recovery because of the GET's broad reach. In a nutshell, this proposed tax increase will remove roughly $500 million from Hawai‘i's economy every year. As the saying goes, the GET taxes "anything that moves" — including rent, food, clothing, gas, non-prescription medicine and doctor visits.
THE GET IS TOO REGRESSIVE AND THE EARNED INCOME CREDIT WON'T HELP MOST
The Senate committees really missed the mark. The GET is the most regressive form of tax imaginable. The tax impacts the poor more than the wealthy as a percentage of income. The poor, who have the least ability to pay the taxes on ordinary daily transactions and have to spend nearly all of their funds to survive, will be hit hardest by this tax increase. All of us will be hit by this tax increase, but the poor are the most vulnerable.
All businesses in Hawai‘i will also feel the impact as they purchase goods, services, and rent If the 25% GET increase is passed, sales will slow, consumers will pay more and more jobs will be lost.
The Senate committees attempted to dampen the impact of this record-setting tax hike by proposing an Earned Income Tax Credit (EITC). What the committees don't understand is that the EITC is anything but a panacea for tax relief for the truly poor. The EITC is riddled with problems, complexity, and abuse by taxpayers and tax professionals.
The EITC is also counterproductive in the sense that it only rewards the poor who actually work and have multiple children. If you are out-of-work, don’t have enough kids, or work too much, you get nothing. For example, a family of four filing jointly that earns just over $45,000 is entitled to no EITC; or a married couple with no dependent children earning roughly $18,500 gets no EITC.
Even in today's economy, the phase out amounts for the EITC are very low, which means a vast majority of Hawai‘i families struggling daily will be hit by this 25 percent GET increase with no relief. And for those out-of-work who have no earned income, they will also get no relief from the GET tax hike.
SPECIAL INTEREST HAS HAD A FREE RIDE FOR TOO LONG
The Senate committees’ move to leave untouched certain decades-old special interests in favor of increasing the tax upon all Hawai‘i taxpayers will not have the positive effect on the economy, as they assume. The Senate committees assume that by increasing the tax on all of us, including all businesses, the economy will not be impacted. However, quite the contrary will occur.
The Senate committees' proposal to increase the GET by 25% effectively increases the cost of living and doing business in Hawai‘i. The GET increase will result in more expensive rent and more expensive equipment and supplies, all the things necessary and essential to run a business. As a result, businesses will have fewer funds to hire, re-hire, or retain workers. Roughly $500 million will be pulled out of the economy, which means less revenue in small business coffers, less money in peoples’ pockets, and less jobs for Hawai‘i residents. The Senate committees did Hawai‘i’s business climate no favors by increasing the rate for all businesses.
THE BUDGET IS BALANCED WITHOUT AN ACROSS-THE-BOARD GET HIKE
Lastly, the Senate committees passed the GET increase under the pretext that it was necessary to balance the budget. The proposal to hike the GET wasn’t necessary. The Lingle-Aiona Administration proposed a balanced budget that didn't include an across-the-board GET increase.
For the past year, the Lingle-Aiona Administration has been working vigorously to spur Hawai‘i’s economic recovery. The economy is in a delicate stage where the recovery cycle is near. By hitting all Hawai‘i taxpayers and all Hawai‘i businesses with a 25 percent state GET tax increase, the Senate EDT and CPN Committees will effectively stall Hawai‘i's hope of rounding the corner in the near future.
The proposal to hike the GET will be vetoed, that much has been made clear by Governor Lingle.
Please encourage Senator Donna Mercado Kim, chair of the Ways & Means Committee, and other Senators to table this bill and consider more responsible approaches to balancing the budget that do not cause job loss and delay our economic recovery.
Kurt Kawafuchi is the Director of Taxation for the State of Hawai‘i
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