Taxpayers are being set up for a tax increase — make that several tax increases — as a result of the work of the latest Tax Review Commission.
The commission is supposed to “submit to the Legislature an evaluation of the state’s tax structure, recommend revenue and tax policy and then dissolve.” The law implementing that constitutional provision goes on specifically to provide that the commission “conduct a systematic review of the state’s tax structure using such standards as equity and efficiency.” The commission is to then submit to the Legislature, “an evaluation of the state’s tax structure and recommend revenue and tax policy.”
Note well, as every Tax Review Commission before this one has, that neither the state Constitution nor the law implementing the commission’s work allows it to evaluate expenditures or make any recommendations with respect to expenditures. However, the current commission seems to have commissioned its consultants to evaluate spending and forecast what future expenditures will look like.
The consultant team of Public Financial Management of Denver has submitted an interim report outlining what it is studying in order to make its final report to the commission later this year. In addition to looking at the state’s tax structure, the firm is looking at Hawaii’s ethnic diversity and aging population as part of constructing a model that will forecast the state’s future expenditures. In turn, it then seems it will attempt to find additional tax and fee resources to fund forecast expenditures. This seems to be exactly the opposite of what the constitutional convention delegates intended of the commission, reconstructing the state’s tax system to provide enough revenue to fund expenditures as opposed to constructing a tax system that is fair and equitable and will support economic growth.
Some of one of the consultants’ ideas include the reconsidering taxing pensions and Social Security income and an age-dependent tax with a lower-income tax on younger people, which the consultants view as an economic stimulant. Another suggestion is the possible elimination of the income tax deduction for property taxes, state income and sales taxes, and possibly other income tax deductions allowed under the federal code. In the alternative, the consultant suggests raising the general excise tax rate and combining that move with tax credits to offset the burden imposed on the poor. He has also hinted at eliminating the general excise tax exemption for nonprofits and imposing fees on nonprofit organizations. Lest they overlook the other option, they are looking at allowing some form of gaming.
A second consultant, who is charged solely with evaluating the state’s general excise tax, also submitted an interim report. He also seems to have been charged with finding ways to raise additional revenues. The four areas outlined for study in his report would compare the general excise tax to retail sales taxes found in other states, make a recommendation on how the state can tax Internet and catalog sales, which he believes total more than $150 million in lost revenues annually. A third target for this consultant was a request by the commission to review seven current exemptions and estimate the added revenue to be realized if the exemptions were repealed. These exemptions include the contractor and subcontractor deduction, reimbursement of payroll costs by hotel management companies, aircraft leases and aircraft parts, prescription drugs and premiums received by HMOs and mutual benefit societies providing health care.
Both consultants didn’t seem to be shy about raising tax rates. When asked if the income tax could be eliminated, the second consultant suggested a general excise tax of 5.1 percent could offset the elimination of 90 percent of personal income taxpayers. The first consultant believes the transient accommodations tax rate is low by comparison to other states and should be raised to export more of the tax burden to tourists.
Can there be any doubt the Tax Review Commission wants to raise your taxes?
Lowell L. Kalapa is president of the Tax Foundation of Hawaii.
