Do you know the meaning of ‘temporary’?
To you and me it’s a common word. But in the world of Hawaii tax, “temporary” seems to have an entirely different meaning.
Let’s take as an example our hotel room tax. When lawmakers initially passed it, the temporary 5 percent tax on hotel rooms was to be used to fund construction of the Hawaii convention center. Legislators said the tax would go away once the center was built.
That was in 1986.
By the way, that tax isn’t a mere 5 percent any more. Last year, lawmakers considered the temporary increase from 7.25 percent to 9.25 percent they had approved a few years earlier and decided they couldn’t live without the revenue. So they made the 9.25 percent rate permanent. Isn’t 28 years a long time for a tax that was supposed to be temporary?
This session, lawmakers are considering the fate of a tax that is imposed on each barrel of petroleum products. It started off at a nickel per barrel to create a fund for environmental cleanup to be used if a disaster like the Exxon Valdez were to occur off our shores.
In 2009, lawmakers raised the nickel to $1.05, an increase of 2,000 percent. This was to be a temporary increase because the state had fallen upon tough economic times, and it is supposed to disappear July 1, 2015.
But two bills that are still alive this session would extend the life of the higher rate for 15 more years. That would mean higher prices for everything involving petroleum products, including gasoline and electricity.
At the Legislature, it was pointed out that the special funds that are fed by this tax support a variety of environment related programs and services in the Department of Land and Natural Resources and the Department of Health. Those departments came out in force, begging lawmakers not to scrap the tax for that would lead to the demise of those programs and services. To us, this reasoning doesn’t make sense because the same programs and services can be paid for with general fund money.
Environmental activist groups, not wanting those programs and services to be trashed, also came out in strong support of the bills. Only the Tax Foundation of Hawaii was there to remind lawmakers about the history of this tax and that it was given a sunset date for a reason.
Of course, the fun doesn’t stop there. You might recall that in 2009, lawmakers, again citing hard times, passed a temporary increase in our individual income tax rates. They also added a few other temporary nasty features such as an absolute limit on itemized deductions for individuals with adjusted gross income exceeding certain amounts. The enhanced tax and the nasty features are supposed to go away Dec. 31, 2015. As far as we could tell, there were no bills this session that seriously suggested extending this tax increase. But we really need to watch what happens next session, especially since this year is an election year and next year isn’t.
Any tax that is supposed to be temporary deserves to be watched very carefully, because the meaning of a temporary tax sometimes is quite different from what you and I may think.
Tom Yamachika is interim president of the Tax Foundation of Hawaii.