The Wrong Time To Raise Taxes

Rick Hamada
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Wednesday - March 24, 2010

The late 1990s were an abysmal economic time in Hawaii. The state was in the hole for millions of dollars, bankruptcies were at a historic high, unemployment was still on the rise and our best and brightest were making a mass exodus.

In 1998, a group of akamai professionals was convened by then-Gov. Ben Cayetano that became known as the Economic Revitalization Task Force. It’s mission was to make recommendations on how to improve our economy. One of its proposals was to adjust the personal income tax rates for Hawaii taxpayers, ostensibly so locals could put more cash in their pockets. But there was a companion proposal to increase the state General Excise Tax from a then 4 percent to 5.35 percent, then down to 4.5 percent.


Understanding that such an onerous tax increase during struggling economic times was the absolute wrong policy to enact, I spearheaded Hawaii’s first “Tea Parties” to protest the proposed increase. With thousands in support, the Hawaii State Senate, with the leadership of then Democratic Sen. Randy Iwase, killed the GET increase. We breathed a collective sigh of relief.

Today we find ourselves again embroiled in economic turmoil, but this time around our woes are more deep and profound. We are not suffering the collateral damage of a Japanese bubble burst, but rather the effects of a global crisis. Our nation and our state are immersed in the greatest economic upheaval since the Great Depression. Similarly, Hawaii’s bankruptcies are high, foreclosure rates are staggering, personal income is shrinking and “furlough” is the new buzzword. We are not seeing the same levels of out migration as we did in the ‘90s simply because Mainland destinations are just as beleaguered, if not worse.

The victory of the Tax Revolt of 1998 is poised for defeat by a 2010 Legislature hellbent on dramatically increasing the GET as a solution to our budget shortfall.

But last week two Senate committees OK’d a proposal to increase the GET statewide from 4 percent to 5 percent, or 4.5 percent to 5.5 percent on Oahu, thanks to the .5 percent surcharge to fund the proposed rail project. Although scheduled to sunset in 2012, collections would be effective ASAP in efforts to stave off a $1.5 billion-plus deficit. But Gov. Lingle has submitted a balanced budget proposal that the Democrat-controlled Legislature is adjusting to meet its own agenda. In other words, the budget gap is much smaller and may not demand such draconian measures.

Regardless, with such dominant numbers, the Democrats could very well pass this initiative through to conference at the end of session and submit a bill to the governor. But it is likely Lingle will veto the measure and there may not be enough votes to override. Some comfort, yes, but - and this is a very big “but” - Lingle did allow HB 1309 to pass without her signature enabling Oahu’s .5 percent GET increase to support rail. If it’s all the same to you, I’ll wait for the fat lady to sing.

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