Tourist tax increase bill sent to Gov. Lingle

By HERBERT A. SAMPLE/Associated Press Writer
April 22, 2009 at 11:04 p.m.
Updated April 21, 2009 at 11:22 p.m.

HONOLULU (AP) — After a spirited debate over taxes and the extent of sacrifices by public employees in tough economic times, the state House and Senate on Wednesday sent Gov. Linda Lingle a package of measures to increase tourist, cigarette and income taxes.

Lingle, however, has already vowed to veto legislation that seeks to raise income and tourist levies. If she follows through, the Democrat-controlled Legislature would be faced with its first opportunity this legislative session to override the Republican governor.

"A number of these measures are very disturbing to us," said Linda Smith, Lingle's senior policy adviser. "In fact we believe they are destructive to our economic well-being."

The measures are part of a larger game plan being fashioned by Democrats to close a yawning shortfall in the state's budget for the next two fiscal years that begin July 1. The state is expecting to spend $2 billion less in the next two fiscal years than it did in the current biennial.

A joint House-Senate committee is currently negotiating over a budget bill that could eliminate or scale back some state services and lay off scores of state workers. But it also is likely to contemplate increased revenues from tax and fee hikes, which would be accomplished through separate legislation.

Some of those bills were sent to Lingle on Wednesday. They would:

— Raise the transient accommodations tax from the current 7.25 percent to 8.25 percent on July 1, and to 9.25 percent from July 1, 2010, to June 30, 2015. That would generate an estimated $30 million the first year and $60 million annually after that.

— Increase income taxes for single filers who earn more than $150,000 annually, heads of households with incomes in excess of $225,000 and joint filers who make in excess of $300,000. Supporters predict it would produce $48 million a year.

— Hike per-cigarette taxes from 11 cents to 13 cents on July 1, to 14 cents a year later, and to 15 cents on July 1, 2011. A separate measure would also raise levies on other tobacco products. Together, the bills would generate between $26 million and $28 million a year.

— Raise taxes on the sale or transfer of second homes or other real estate valued at more than $2 million. That would produce an estimated $4 million a year.

All the bills were strongly backed by Democrats, while GOP lawmakers and a few Democrats opposed them. Some Republicans, however, did support the cigarette tax hike.

Smith said the income tax hike would impact 37,000 Hawaii residents, many of whom are small business owners. "They are the backbone of the small business economy of the state," she said.

The governor remains opposed to the income, tourist and conveyance tax hike proposals, Smith said, adding that Lingle is still mulling over the cigarette tax measures.

"This administration has laid out a way to deal with the budget shortfall that does not require raising taxes," Smith added.

Lingle's budget plan asks the Legislature to assume that she can gain $278 million in labor savings later this year from state worker unions, which so far have shown little willingness to accept lower wages or reduced benefits. She has warned that if concessions are not realized, layoffs could be the next step.

During the Senate debate, GOP Sen. Fred Hemmings of Lanikai-Waimanalo said the tax increases were being pursued "for one special interest group" — government employee unions — so they can "walk away from the state crisis without contributing a thing."

"You cannot help the poor by destroying the rich," he added, referring to the income tax proposal.

That chamber's only other Republican, Sam Slom, Diamond Head-Hawaii Kai, said Hawaii's government "has gotten too bloated, too big, and that's what the thousand or more people tried to tell us last week" at an anti-tax rally last week at the Capitol.

But Majority Leader Gary Hooser, D-Kauai-Niihau, accused Republicans of believing it's "politically correct ... to demonize public workers."

"It's easy to bang on the clerks and the janitors," he added. "Why don't we bang on President Bush, who through his policies led us down this path? ... Why don't we bang on the governor, who's had six years to streamline government?"

Donna Mercado Kim, chairwoman of the Senate Ways and Means Committee, noted that the transient accommodations tax has not been altered since 1999, and that in recent years, the tourist industry considered programs to limit the number ofvisitors and target only high-spending vacationers.

"We all need to share in the cuts, raising of revenue and sacrifices," said Kim, D-Kalihi Valley-Halawa.

In the House, Rep. Barbara Marumoto, R-Kalani Valley-Diamond Head, said Democrats think increasing the tourist tax carries no repercussions.

"Politicians think they can get away with it because visitors don't vote," she said. "But they do, not at the ballot box but with their pocketbooks."

But Rep. Joey Manahan, D-Kalihi-Kapalama, said a $1 increase per $100 in accommodation costs will not stop tourists from visiting the islands.

"I don't think that's going to deter anybody," he said.

House Majority Leader Blake Oshiro of Aiea-Halawa said the state's budget gap has to be filled.

"I don't think anyone in this chamber is trying to do anything that would destroy the American dream," he said.

___

Associated Press reporter Mark Niesse contributed to this report.


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