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May 1998

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Did Yesterday's Dream Come True? (Dee Jay Mailer)
President's Message (Grace Furukawa)
Decisions on Tax Changes Near (Astrid Monson)
L.A. Rail Project Stalled (Arlene Ellis)
Voter Service
VAWA Planning Committee Meets (Suzanne Meisenzahl)
Title IX Today
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Decisions on Tax Changes Near

Late in 1996 League testified on the then pending recommendations of the State Tax Review Commission. A small "tax policy study group" got together and working within the LWV-US and Honolulu positions on taxes, we were able to formulate a general position on the subject.

Honolulu's position, a consensus after our 1989 City Funds Study, is that tax revenues should be adequate to fund the public services and facilities needed, and that the tax system should be progressive – graduated to the ability of various income groups to pay.

During the spring and summer of 1997 we made a detailed study of the Federal tax structure and of the various "tax reform" proposals before Congress. The July-August Voter summarized our findings on the flat tax, capital gains tax, inheritance tax, and child tax credits.

In August we were asked to serve on the State's Tax Working Group, one of five committees under the Economic Revitalization Task Force. We had six or seven three-hour meetings, which included major presentations by two nationally recognized tax experts with strongly opposing points of view on the relationship of tax cuts to economic growth, on the relative desirability of various taxes (flat, graduated income, consumption, and other), and on what kind of tax changes should be recommended.

Though League's position differed considerably from most of the other members, we were given ample opportunity to state it and, indeed, invited to write a minority report to be an appendix to the Committee's formal report. (Somewhere between the first and last drafts of that report, this disappeared and was never made public.)

The Tax Working Group's major recommendation was a $600 million tax cut $400 million in income, corporate and $158 million in pyramided GET taxes. The full Tax Force, feeling – as did League – that this was too drastic a revenue cut for the State to bear on October 22 added to these tax recommendations a 34% increase in the General Excise Tax which we opposed as substituting a regressive for a moderately progressive tax. We also pointed out that those changes would create a major shift in the tax burden – some $400 million, in fact – from the upper income 24% of the State's tax-payers to the lower 76%.

What followed was a whirl-wind of activities, appearances on "town meetings", neighborhood boards, and TV panels discussing the various recommendations; writing letters to the Editors and longer "Viewpoints" for the Press. We had to do a lot of additional calculations and estimates of the impact of the various tax proposals on different income groups, which were sent to many public interest groups at their request.

We met with Governor Cayetano on December 13, along with a number of others critical of the Task Force recommendations. We submitted an outline of our changes, which we alleged were more progressive and would not create as large revenue losses as The Task Force proposals.

We opposed any GET increase and suggested instead the 40% cut proposed for all income groups be changed to a graduated cut ranging from 80% of current levels for the lowest incomes to 15% for the $41,000 to 60,000 bracket. We proposed that the $61,000 to 100,000 brackets continue to pay the present 10% tax rate and that the rates be increased to 11%, 12%, and 13% for brackets of $100 – 200,000, $200 – 300,000 and above $300,000, respectively – increases affecting less than 5% of all tax-payers.

  1. On February 4 Governor Cayetano made a number of revised proposals which significantly reduced the tax cuts at the upper levels – from 40% to 15% and later 25% and reduced the 34% increase in the GET to 19%. He dropped the $158 million cut in pyramided GET taxes and reduced the proposed corporate/franchise tax cut from 50% to 30%. We stated that these changes were in the right direction but did not go far enough

  2. During February and March, Arlene Ellis testified on various tax bills before both the House Finance Committee and the Senate Ways & Means Committee.

During March we met with various legislators and officials, at their request.

About the middle of April the State House and Senate adopted significantly different versions of the bill intended to stimulate the economy, starting with the ERTF and the Governor's proposals. The House bill called for an 0.5% increase in the GET rate – an increase of 12 1/2 %, or about $175 million. Income tax rates were capped at 8.5% the first two years and 8% thereafter – compared with the originally recommended 7% and 6% and the present 10%.

The Senate bill rejected any GET increase whatever and cut the top income tax rates less – to 9.5% and 9%, respectively. Lower income brackets would be cut by some 25%.

In order to close the gap – some $150 million – between present tax revenue and what the Senate bill would produce, we recommended to the Senate Ways & Means Committee that the $27 per capita "food tax credit" could be eliminated – saving $27 million – since we now would have a larger and more equitable graduated low income tax credit. We also testified in favor of a bill removing the GET exemptions given to many private profit-making businesses.

As we had before, we recommended taxing highincome pensions – letting the first $20,000, for example, remain tax-exempt but including the rest in taxable income.

As this is written, no agreement has been reached. The session may be extended until the matter has been settled.

Astrid Monson
Tax Study Group

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