November-December 1997 Home   Newsletters

January 1998

February 1998

Discrimination and the Constitution
President's Message (Grace Furukawa)
Gambling Forum
League Makes Tax Recommendations to Governor (Astrid Monson)
Membership Meeting Planned
Orientation Meeting (Grace Furukawa)
In Memoriam

League Makes Tax Recommendations to Governor

On Saturday, December 13, about a dozen critics of the State's Economic Revitalization Task Force were invited to meet with Governor Cayetano to discuss with him our reasons for opposing various of its recommendations. The meeting lasted from 9:15 a.m. to 12:30 p.m. and was frank on both sides.

We addressed only two issues – the various tax changes proposed by the Task Force, and the recommendation that the State Land Use Commission be abolished. After considerable consultation with Jean, Grace, Janet, Arlene, and others I wrote up League's recommendations. Kits containing research data backing up what we said were given to the Governor, members of his staff, and to the various participants in the meeting. What follows is the gist of our statement:

Hawaii's taxes are not excessive, as claimed. When tourist tax payments are eliminated and when State and county taxes are considered as a unit, they are about average for the whole United States. Considerable question exists, as well, on whether reducing taxes plays any significant role in economic development. The proposed reduction of $100 million should be compared with the State's gross domestic product of $35.5 billion per year. Proposals should be carefully evaluated to determine whether they really improve the business climate or just benefit a favored few.

Income Taxes

Present rates top out at 10% at $20,500 (single) or $41,000 (joint) and are a "flat tax" above that. Proposed rates flatten out at 7% and, later, 6%, at same levels. The Task Force proposes a 30% and later, 40% cut, across the board for all brackets.

League of Women Voters proposes:

  1. Graduated cuts from present rates of between 90% for $0-3,000 taxable income bracket to 15% for $41,000-60,000 bracket. These would result in tax rates ranging from below 1.0 to 8.5%. (Numbers not written in stone, need study.)

  2. Increasing progressivity by adding four new brackets – $61 to 100,00 at 10%, $101 to 200,000 at 11 %, $201 to 300,000 at 12%, and $301,000 and over at 13%. This can be compared with addition in recent years of three new Federal income tax brackets over the flat 28% of the Reagan years – 31% from 99,600 to 151,750 (joint returns), 36% from 151,750 to 271,050. and 39.6% for over 271,050. (Less than 5% of Hawaii tax-payers would pay a marginal rate of over 10%.)

  3. A possible refundable graduated tax credit to reduce the regressivity of the present GET, similar to what we had until a few years ago but at somewhat higher amounts, up to $30,000. This is to take care of cases such as single mothers with two or three children, day care expenses, and no non-taxable income. An earned income credit is an alternative.

  4. Add pension income above a $10,000 or 15,000 nontaxable threshold, to taxable income. For now, we are not suggesting including Social Security.

General Excise Tax

League of Women Voters proposes:

  1. Scrap the proposed 34% increase from 4.0 to 5.35%.

  2. Review proposals to eliminate pyramiding, said to reduce business taxes $158 million. Present revenues collected from 1/2 of one % items total only $71 million. What is the remaining $87 million? How much of this can be expected to lead to lower prices?

Corporate Income Tax

We did not oppose this, but some say it will benefit mostly out-of-State and large business and be of no help to local small business. Should be reviewed.

Land Use Commission

League of Women Voters proposes:

  1. Do not eliminate it.

  2. Clarify functions and powers in relation to the Counties.

Without the LUC, it would be much easier for developers to secure county approvals to urbanize agricultural and conservation land. There need be no duplication between LUC action (designates whether a given general area should be urbanized or not), County planning action (designates what kinds of urban use should be permitted – (residential, commercial, industrial, etc. – in various areas designated by LUC for urban use) and zoning action (specifies detailed regulations.)

Our position was essentially that the annual $350 million proposed a higher GET taxes on residents cancelled out the $400 million reduction in income taxes, and thus there would be no significant effect on economic development. This was just a shift in the tax burden from the more affluent, who would get 70% of the income tax reduction, to the below average-income taxpayers, who would pay 67% of the GET increase.

The next morning, December 14, the Sunday paper featured a major front-page article entitled "Tax Cut Little Help, Study Says – Would Benefit the Rich," which was based on an analysis of the Task Force's recommendations by a Washington think tank.

The Governor said that he, too would like the income tax to be more progressive, but doubted that the Legislature would be ready to raise the top rates. He wanted to know what the effect on State revenues would be of our approach as compared to the income tax loss the Task Force's recommendations would produce. He directed his staff to look into the matter. Stay tuned.

Astrid Monson
State Tax Policy Study Group

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