Tax Review Commission: Don't Kill the Messenger

Chad Blair/Civil Beat

Randy Iwase began Tuesday's Hawaii Tax Review Commission hearing at the state Capitol by reminding everyone of the terrorist attacks on the United States.

"Let's put things in perspective," he said. "That while what we do today is important, what happened to our nation 11 years ago and what the families of the heroes go through everyday since Sept. 11, 2001, is at a far different level."

Iwase was speaking to a conference room full of people unhappy with a 154-page report from the mainland firm the PFM Group that recommended dramatic changes to Hawaii tax policy.

The proposals include raising the general excise tax, hotel taxes, corporate income taxes and cigarette and alcohol taxes; reducing or eliminating current deductions such as for income and property taxes; and taxing pensions.

The PFM Group report also projects what state revenues and expenditures will be in the year 2025 based on current levels and says we'll be deeply in the red — hence the need to raise revenue.

Opposition to the tax hikes include a majority of lawmakers in the state House.

"We feel that such a significant net tax increase probably will be detrimental to private businesses, residents, or both, and that PFM has not sufficiently analyzed the impact of the tax increase on the economy, businesses, and residents," House Democrats — 29 of them, including Speaker Calvin Say and Finance Chair Marcus Oshiro — said in joint statement.

"We find these recommendations, as well as others in the report, disappointing and disagreeable as they increase taxes on individuals and businesses placing a greater burden upon them," said members of the minority caucus led by Rep. Gene Ward. "This is especially problematic given the state of Hawaii's economy and the significant cost of living faced by residents of the state."

Lowell Kalapa, president of the Tax Foundation of Hawaii, argued in his Civil Beat column Sunday that the Tax Review Commission has exceeded its mandate. He compared the cost of the PFM Group's report with the "Stevie Wonder blunder" at the University of Hawaii this summer, in which the school appears to have been swindled out of $200,000 for a fake concert.

(The cost of the PFM Group report, along with a separate report regarding the GET, totalled $180,000.)

Meanwhile, testimony submitted for Tuesday's hearing was heavily in opposition, and it came from real estate agents, bankers, accountants, builders, contractors, the visitor industry, nonprofits and retirees.

The Tax Review Commission went on the defense.

Contrary to Kalapa's assertions, Iwase stressed that the commission, which meets every five years, is indeed following its mandate to make recommendations on tax policy. He said the two reports came from hired consultants and so should not be considered the opinion of the commission.

According to state law, the commission's mission is to look at the fairness of the tax structure but also consider the revenue picture:

The commission shall conduct a systematic review of the State's tax structure, using such standards as equity and efficiency. Thirty days prior to the convening of the second regular session of the legislature after the members of the commission have been appointed, the commission shall submit to the legislature an evaluation of the State's tax structure and recommend revenue and tax policy...

Any changes in taxes, said Iwase — a former legislator — can only come from the Legislature. Besides, the history of past Tax Commissions would show that the panel had a pretty low batting percentage when it came to lawmakers adopting their proposals.

Speaking to reporters after the hearing, Iwase said he was not surprised by the negative reaction to the report.

"I fully understand," said Iwase, a pensioner himself. "Thank God my wife's working."

Have feedback? Suggestions?