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Rail Transit
President's Message (Grace Furukawa)
Testimony on SB 2665, Relating to Environmental Impact...
Violence Prevention (Suzanne Meisenzahl)
Governor Revises Tax Proposals (Astrid Monson)
Proposed Budget FY 1998-1999
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Governor Revises Tax Proposals

Public participation in government scored a modest but satisfying victory on February 4 when Governor Cayetano, after three months of public discussion and criticism, announced a number of significant revisions in the Economic Revitalization Task Force's tax recommendations. Originally touted as the keystone of the economic recovery plan, by now the hundreds of millions of dollars in tax cuts which were to revitalize the economy had petered out to an annual net cut of $73 million – one-fifth of one percent of the State's annual gross domestic product. Nevertheless, the revisions still called for a 19% increase in the regressive General Excise Tax, which League continues to oppose.

We testified on the Task Force's tax bill, SB 2215, before the Senate Ways and Means Committee on February 5. We particularly opposed the shifting of hundreds of millions of dollars in taxes from the upper-income 24% of the State's tax-payers to the lower 76% – those with taxable incomes under $30,000.

Before the testimonies began, the Governor personally announced his proposed revisions. The Task Force had called for cuts of $600 million through 40% across-the-board cuts in personal income taxes, elimination of the pyramided (multi-level) GET taxes on business, and a 50% cut in the corporate income tax. To off set these, at least partially, the Task Force had recommended a 34% increase in the GET, or about $440 million.

Opposition to these recommendations centered on the GET increase. Small business, senior citizens, social workers, the City of Honolulu, and many others voiced their objections. League pointed out that 70% of the income tax cuts would go to the 24% upper-income tax-payers and only 30% to the 76% lower ones, whereas about two-thirds of the GET increase would be paid by the latter group.

Originally the Task Force had alleged that in order to stimulate the economy, its recommendations had to be accepted as a package, without change. In spite of a number of "town meetings", TV talk shows, and other public discussion of its program, the Task Force refused to change it one iota.

Wherever we could, League presented our recommendations. These were basically to eliminate the GET increase entirely, and to change the schedule of income tax decreases by giving the largest decrease, say, 80%, to the lowest income brackets, declining to 70%, 60% etc., with increasing brackets, down to 15% for the $41,000 to 60,000 bracket. We proposed no income tax decreases above $60,000 - the $61,000 to 100,000 bracket would continue to pay 10% as it does now, and the bracket rates would go up to 11%, 12%, and 13%, respectively, for the $100,000 to 200,000 to 300,000 and 300,000 and up brackets - which would affect less than 3% of the State's taxpayers.

We argued that this would be a far more progressive income tax structure than that proposed by the Task Force, would result in a lower revenue loss to the State, would not need to be balanced by a 34% GET increase, and would increase the purchasing power of some 90% of the tax-payers, most of which would be spent in the local economy to the benefit of local business. We spoke on radio and TV, met with neighborhood boards. and other community organizations, wrote Letters to the Editor.

The Governor's suggested revisions of February 4th were presented to the legislature. Income tax cuts remain at 40% for lower income groups but were progressively decreased with higher brackets. Top rates were revised to 8.5% the first two years and 7.5% after that, instead of the current 10% and the 7% and 6% recommended by the Task Force. The income tax cut would drop from $400 million to 273 million. The originally proposed GET increase of 34% would be reduced to 19% - from $440 million to 266 million. The proposed cut of $158 million in intermediary GET business taxes would be eliminated. Corporate and franchise taxes would be cut by 30% instead of 50%. The low-income tax credits would be improved and increased, especially for senior citizens.

We felt that these changes were in the right direction, but did not go far enough. The rates for brackets above a certain amount would still be flat, no matter how high the income. The combined income and GET changes would still favor the upper income groups, though not as much as in the original Task Force proposals. There would still be a net revenue loss to the State, which we felt made no sense in view of the budget short-falls in the hundreds of millions of dollars already announced

League will continue to push for our original recommendations, which we think will do more for economic revitalization then either the Task Force or the Governor's revised proposals. We argue that what local business needs is more customers, with more to spend for food, clothing, household necessities, and the like. Tax cuts at top income levels are more likely to be invested in Wall Street then to be spent at the local market.

Astrid Monson
Chair State Tax Policy

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