FACT CHECK — PRP: Cayetano Gave Rich People Big Tax Break
A pro-rail union group that has been attacking former Hawaii Gov. Ben Cayetano is accusing him in a recent television commercial of giving significant tax relief to the rich and taking money away from public education.
“When Ben Cayetano declared war on teachers, funding for teachers, our kids and our classrooms lost ground,” says a teacher, who identifies himself as Ed Garcia. “But Cayetano gave a big tax break to rich people.”
Regardless, is what he says about Cayetano true?
The commercial is part of "Read Ben's Record," a campaign by the Pacific Resource Partnership to discredit Cayetano's candidacy for Honolulu mayor. PRP is a trade union group affiliated with the local carpenters union.
PRP has released one other TV commercial berating Cayetano's political past. Both commercials encourage viewers to visit the campaign's website to learn more about the former governor's track record. Cayetano was governor from 1994 to 2002.
A section called "War on Teachers" on ReadBensRecord.com takes readers to "the facts" behind PRP's TV spot.
To back up its claim that Cayetano gave rich people a big tax break, PRP refers to a tax measure — House Bill 2749 — that Cayetano signed into law in 1998.
"On May 13, 1998, the Hawaii state Legislature approved HB 2749, which gradually cuts state personal income taxes by $752 million, lowering the rate from 10 percent to 8.25 percent by 2002," reads the write-up.
Cayetano’s campaign immediately responded, publishing on its website a list of "REAL facts."
The response emphasizes that, prior to the tax cuts, couples with adjusted gross incomes (AGIs) of $40,000 and individuals with AGIs of $20,000 were taxed at the top rate of 10 percent.
“[T]hese groups were not rich people but in fact predominantly the working class,” the response says. “Governor Cayetano’s efforts to revise the tax structure to put this group of taxpayers in lower tax brackets were rejected by the Legislature due to immense pressure from public worker unions opposed to reform.”
In other words, the mayoral candidate says that his intention was to cut the rates for middle-class taxpayers as well.
Tax Cuts For Working Class?
Civil Beat looked into Cayetano's original income-tax proposals before he signed the bill into law, Act 157, in July 1998. Those documents are only available in paper form at the Hawaii State Archives.
So we paid the archives a visit. Buried in a folder dedicated to Act 157 is a document comparing Cayetano's, the Senate's and the House's 1998 income-tax proposals.
It shows that Cayetano proposed tax cuts for every income bracket, with the top state personal income rate decreasing to 7.5 percent by 2002. These cuts were bigger than those that the Legislature eventually passed.
The document (embedded below) also details his proposed revisions to the tax structure. Cayetano is telling the truth when he says he endeavored to adjust the income brackets so that working-class filers would also have lower rates.
"The overall effect was that those in the middle-income categories joined incomes in the top bracket and got a benefit," said Lowell Kalapa, president of the Tax Foundation of Hawaii.
Cayetano's revision called for a 40-percent rate reduction for joint filers making less than $41,000 in the third year (and 30-percent reductions in the first and second years).
But the Legislature — not the governor — by law determines the state's income taxation. Article VII, Section 2 of Hawaii's constitution states that lawmakers both define income brackets and set tax rates.
Read Ben's Record itself cites a May 1998 Star-Bulletin article which says that the Cayetano administration's original tax package proposal was much different from the one eventually adopted by the Legislature.
“The tax package that legislators are scheduled to vote on tonight is so diluted from the one originally recommended by the Economic Revitalization Task Force (ERTF) that one expert called it laughable,” reads the article.
After all, the task force — consisting of administration officials, experts from the private sector and legislators — authored the original tax-rate recommendations, according to the Tax Foundation's Kalapa. "It wasn't solely governor Cayetano's call, but also a task force call," he said.
While the PRP ad insinuates that Cayetano gave the rich a tax break at the expense of working teachers, that's not what the records show he was trying to do. He sought to give working-class earners a break, too. Moreover, the income-tax program eventually adopted was the product of collaboration between Cayetano, the economic task force and the Legislature.
War on Education?
PRP also implied in its attack ad that the tax breaks were accompanied by cuts in funding for teachers. While Cayetano did clash with teachers, that was three years later.
Public school teachers went on strike for nearly a month in April 2001 as they battled with Cayetano over salary contracts.
The teachers union asked for salary raises that would've cost Hawaii $200 million. The state proposed a contract deal that would've cut that amount to $93 million, but teachers wouldn't have it.
Negotiations ultimately produced a two-year contract approved by 85 percent of teachers. The deal didn't satisfy all of the teachers' demands. But it did include across-the-board raises of 10 percent.
UPDATED BOTTOM LINE: The commercial accuses former Gov. Ben Cayetano of giving tax breaks to rich people in 1998. Actually, it was the Legislature's decision and Cayetano's original intention was to seek tax relief for all taxpayers — not just top earners. His original proposal laid out even more generous tax breaks for working-class filers, documents show. Moreover, the cuts that the ad is referring to were the result of compromise between Cayetano, the economic task force and the Legislature. And although Cayetano did clash with teachers, but that was three years later. We judge the commercial to be Mostly False.
Watch the commercial for yourself:
Here are the legislative documents comparing Cayetano's original tax revision proposals with those from the House and Senate: