September 1997 Home   Newsletters

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January 1998

Annual General Membership Program Planning Meeting
President's Message (Grace Furukawa)
Bonnie Campbell 4th Violence Forum (Excerpt from her speech) (Bonnie Campbell)
State Economic Task Force Makes Tax Recommendations (Astrid Monson)
Holiday Food Drive
Spread the Word
Public Forum on Gambling
Special League Mailings (Grace Furukawa)
Membership (Annie Kim)

State Economic Task Force Makes Tax Recommendations

In August, League was asked to participate in the Tax Working Group of the State's Task Force on Economic Revitalization. As I had worked with Arlene Ellis and Jean Aoki, among others, on our testimony before the 1996 State Tax Review Commission and on various tax proposals before the 1997 Legislature, I was asked to sit on the Working Group. The Group met three hours each week during September, and presented its recommendations to the Task Force on October 7.

League was a very small minority but a vocal one. As explained in the October Voter, nearly all the Working Group Members represented business interests. Among their recommendations were:

  1. Decrease individual income taxes across the board by about 30% the first year and 40% the next and thereafter. This involved cutting the top rate, which applies to couples with taxable income over $41,000 and to individuals above 20,500, from 10% to 6%.

  2. Increase standard deductions and exemptions to Federal levels.

  3. Lower corporate income tax by at least half.

  4. Eliminate multi-level-pyramiding provisions of the General Excise Tax - such as the 1/2% tax on wholesaling, producing, manufacturing, etc.

  5. Exempt exported services from GET.

Other proposals which were discussed in the Working Group but were not recommended included restoring the previous graduated income tax credits eliminated two or three years ago, eliminating the remaining $27 per capita food tax credit and phasing in taxation of higher pension incomes. Increasing the GET tax was not supported, nor the concept of "revenue neutrality" – i.e., balancing tax decreases with tax increases elsewhere.

In accordance with League's national, state and Honolulu positions on taxation - primarily that tax revenues should be sufficient to fund the services and facilities needed by the public and should be levied on a progressive basis in accordance with ability to pay, meaning higher rates on higher income, we submitted an alternative option. This included:

  1. Reduction of income taxes at the lower income levels but increasing the rates at the higher levels (say, $100,000 and up) to 11% or 12% at the highest levels.

  2. Eliminating the $27 food tax credit per capita, and instead, reinstituting, the former graduated income tax credit, ranging from, say $100 per person at the lowest income levels and phasing out at, say, $30,000.

  3. Taxing pensions above a certain threshold - say $30,000.

In addition, we went along with the Group's virtually unanimous proposals to reduce the corporate income tax and the pyramiding of the GET on intermediate business activities such as wholesaling. We felt these were direct benefits to business, which might actually improve the business climate, unlike the Group's other proposals.

Between October 7 and October 22 the Task Force considered the recommendations of the five Working Groups and issued its own report. Some of the Tax Group's recommendations were supported, some rejected, and additional proposals were made. The Task Force's major tax recommendations now involved:

  1. Acceptance of Tax Working Group's recommendations. 1, 3, 4, and 5 (see above)

  2. Add non-refundable graduated tax credit for those with "modified adjusted gross income" below $20,000. (This includes taxable income plus nontaxable welfare payments, Social Security, pensions, tax-exempt interest, workers' compensation, scholarships, business losses.) A "non-refundable" credit only applies to taxes you are otherwise obliged to pay.

  3. Impose GET on imported services.

  4. Raise the GET from 4% to 5.35%, or an increase of 34%.

Since Oct. 22 League has spoken at various town meetings conducted by the Task Force. Has been on TV, and has had two or three articles or Letters to the Editor published in the Press. Our main points have been:

  1. Hawaii's State taxes are high because they pay for schools, libraries, and medical and health services, which in practically all other States are paid by cities and counties. When State and county taxes are combined, Hawaii is just about at the median a month the States.

  2. When the taxes paid by tourists (25% of GET, for example) are deducted the remaining State tax burden as a proportion of the State's total personal income, is almost exactly the average paid in all the States.

  3. Reducing our tax revenues by $600 million, as the Working Group recommends would force elimination of many educational, health and welfare services as well as reduction of other needed State services, facilities, and programs.

  4. Increasing the GET tax on the remaining retail base would add about the same tax burden at the lower income levels as reduction of the income tax would subtract from the burden at the higher income levels.

  5. This would substitute for a relatively progressive tax a highly regressive one.

Because of many questions -- some friendly, some hostile -- about how we came to our conclusions, we prepared tables showing how the Task Force's proposals would affect the 80% of our tax payers with adjusted gross incomes under $40,000 as compared with the 20% above that amount. These have been given to all who asked for them.

In summary they showed that the lower-income group would receive income tax decreases of $120 million but GET increases of $220 million, while upper-income tax-payers would have income taxes decreases totaling $280 million while paying only $110 million additional GET taxes. Along with the $200 million decrease in corporate income and pyramided GET taxes, this would mean that the 20% upper income and business taxpayers would be given a net decrease of $370 million while the 80% at the lower end of the scale would suffer an increase of $100 billion a total shift from the upper income and business groups to the lower-income groups of $470 million.

As this is written the Task Force is conducting a number of "town meetings" in various parts of the State to explain their recommendations and receive questions and comments from the public. Just which recommendations will then be formulated as bills to present to the 1998 Legislature we do not yet know, of course. However, League hopes to be active in presenting testimony for or against various bills in terms of League tax policy and positions and the considerable research we have done.

We welcome the participation of League members in these efforts. Call Jean Aoki or Astrid Monson to volunteer.

Astrid Monson
Tax Policy Study Group

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