Tax Review Commission Proposes Gambling, Pension Tax, and a Grab for Rail Tax
by Andrew Walden
“Is the firm from the mainland legit?” This first thought confronts any akamai reader of the recently released Study of the Hawaii Tax System commissioned by Randy Iwase’s State Tax Review Commission.
Commissioners hired the PFM Group, which describes itself as “the industry leader in virtually all segments of the municipal finance industry.”
In a politically divided nation, how does one company lead “virtually all segments” of any governmental operation? Simple: Give the customer what he wants.
In Hawaii the customer --the guy who appointed Iwase-- is Governor Neil Abercrombie. Abercrombie infamously launched his term in office with a massive round of tax increases—leaving himself as the worst-rated Governor in the 50 states. And lo and behold, the report’s recommendations are very familiar to any student of Abercrombie’s first year:
· pension and social security tax
· Approve a lottery or other forms of gambling
· GE tax hike (Now you know why the Progressives want to kill rail.)
· internet sales tax (elliptically referred to with the phrase “broaden definition of nexus”)
· increase Transient Accommodations Tax
· boost taxes on fuel, soda, alcohol, cigarettes, and prepared food
· conveyance tax, insurance premium tax, cell phone service tax
· eliminate GE and income tax deductions.
PFM can maintain its “legitimacy” while giving Abercrombie what he wants by accepting Abercrombie’s built-in assumptions. These are explained on page eight of PFM’s Executive Summary:
“The baseline projection assumes maintaining the current level of service for existing programs and mandated (primarily state and federal law) changes as well as the current tax and revenue structure, including any statutorily required changes.”
“Existing programs and mandated (primarily state and federal law) changes” includes Hawaii’s solar tax credits, pension obligations, and the expansion of State Medicaid expenditure mandated by Obamacare.
According to May’s figures from the Council on Revenues, the Solar Tax Credits will cost $491M more than projected through 2018.
Although some claim the State will save money, Obamacare could cost the State between $30M and $110M per year depending on how much ‘outreach’ effort is made.
CoR projected an overall shortfall of $791M with the additional $300M largely due to the fact that tax increase revenue projections fell short because they did not account for the well-documented fact that tax increases reduce economic activity.
In an effort to make matters worse:
the Commission requested that PFM develop the model with the ability to view financial results on an Accrual basis (as opposed to the cash basis form of budgeting use by the State – and most other states). To do so, the model reflects the full pension and OPEB liabilities. When it does so, the projected deficits in the Baseline projection become significantly larger and harder to manage….
The result is a “worst case” model which assumes no change in pension benefits or vesting rules--yielding multi-billion dollar deficits starting immediately.
The PFM report “legitimately” describes how much taxpayers must fork out to pay for Hawaii’s multi-million dollar “solar” giveaways to Wall Street. And it describes how much the Pension Tax must be raised to pay for not changing pensions.
He who controls the assumptions, controls the outcome.
The purpose of this report is to justify killing rail, keeping the 4.5% GE Tax and extending it to the sister isles. This explains why so many tax-and-spend Democrats—including Abercrombie—have joined the anti-rail bandwagon. It also illustrates the profligacy of the one-party system. In the face of impending economic ruin, the old boys were pushing for another $5.5B in spending. The death of rail brings nihilistic benefits by reducing the flow of pork to Hawaii and by reducing Hawaii's pork-related credibility in Washington.
Regarding pensions the purpose is to force pension expenditures under control either by cutting benefits, tightening the vesting rules, or by taxing the tax.
The report is timed to set the post-election agenda. Its release is timed to prevent taxes from becoming an issue in contested Democrat primaries.
It is up to Republican legislative candidates to make an issue of tax increases in the remaining 58 days until November 6.
Voters need to contact the candidates in their district and demand to know their position on Gambling, Pension Tax, Consumption Taxes, and the GE Tax.
The Commission holds a Public Hearing September 11.
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