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Tuesday, February 2, 2010
Aiona: Raising taxes is “worst thing State could do”
By Lt Gov Duke Aiona @ 5:17 PM :: 4807 Views :: Energy, Environment

Promoting growth by investing in our local economy

By Lt. Governor James R. “Duke” Aiona, Jr.

During these challenging economic times, it is critical for our state to encourage reinvestment into our local economy and provide a fair tax system that does not burden our citizens, families and small businesses with tax increases.

Economic hardship has led many families and businesses to tighten their belts to save money. Our Administration has also had to find new ways to cut spending while providing essential services for Hawai‘i residents. Right now, the worst thing the State could do is take more of your money by raising taxes.

However, some see Hawai‘i’s general excise tax – 4.5 percent on O‘ahu and 4 percent on the Neighbor Islands – small compared to the national average sales tax of about 6 percent.

This is misleading because unlike a sales tax, an excise tax must be paid on goods and services every time they change hands, from the producer to the cargo ship to the retail store. In effect, Hawai‘i’s excise tax is equivalent to about an 11 percent sales tax. By the time a product reaches a consumer, these taxes have accumulated at each step and passed on in the price tag.

This results in high prices for goods that can be a heavy burden on our citizens when they are stretched to pay for basic necessities during these economic times.

We cannot tax our way to prosperity, and increasing the general excise tax, even 1 percent, would lead to job loss, hurt our tourism industry and, ultimately, jeopardize Hawai‘i's long-term economic recovery.

In order to restore efficiency to Hawai‘i’s general excise tax without increasing the tax rate, we need to make sure that all businesses that enjoy exemption for the excise tax make a timely return for their taxes, as well as expressly claim their entitlement.

Over time, the general excise tax’s efficiency has been downplayed due to additions of exemptions from the tax for particular businesses. Many of these exemptions allow for businesses to avoid paying the general excise tax altogether. And because some businesses pay no tax, they file no tax returns. 

We are all in this together. That is why the Administration’s supplemental budget includes the temporary use of the Transient Accommodations Tax from the counties to help balance the State budget until we recover from this national and global economic downturn.

In addition, the Cash Economy Enforcement Act of 2009, which took effect July 1, 2009, provides the Department of Taxation with additional resources and tools to investigate suspected violations of tax laws, especially cash-based transactions in order to make sure that all sectors of Hawai‘i’s economy are paying their share of taxes.

It ensures that those who transact business in cash pay the fair amount like others who deal in credit cards, checks and other traceable monetary dealings. This Act also provides the Department with various enforcement tools, including the authority to issue monetary fines and cease and desist citations.

However, making sure everyone pays their fair share of taxes is only part of an effective tax policy. Simply raising taxes on our residents and small businesses is not a solution. It’s part of the problem.

We must remain committed to enhancing the future prosperity of our great state, which begins with improving public education.

Our state's number one resource is our people. Government’s job is to provide a fair tax environment that encourages their success and gets out of their way so they can do what Hawai‘i’s businesses do best: work hard, create jobs and invest back in our local economy.

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