Let’s do a little math.
If the GET had instead been, say 5 percent that year, the state’s take would have been, very roughly (the GTE rate varies depending on the industry), another $500 million or so.
Hawaii’s budget deficit this fiscal year and the two that follows is $844 million.
Put another way, if the GET were raised for the next two consecutive fiscal years, the state would not only be able to pay for existing operations, it would be in the black.
Now, let’s do a little reality check: The GET is probably — probably — not going to be increased this year.
With the exception of Oahu’s half-percentage-point tax to help fund Oahu’s rail system (it sunsets in 2022), the GET hasn’t been increased since 1965, when it was 3.5 percent. Neil Abercrombie was still a hippie college student in Manoa.
But, if Hawaii lawmakers want to resolve the state’s financial problems relatively quickly, there is no greater single revenue vehicle than the GET, which accounted for 66.3 percent of the state’s tax collections in 2009.
While a GET hike is not currently being proposed (more on that later), it hasn’t been ruled out, either, and is increasingly being whispered about in Capitol corridors (and in the case of labor unions facing a new round of collective bargaining, sometimes shouted).
The more unpopular the current proposals to raise revenue and save money become — e.g., ending Medicare Part B reimbursements, taxing pensions, raising taxes on liquor, stopping state tax deductions, cutting social-service programs — the more attractive a GET hike becomes.
Just last week the governor himself sought wiggle room on the matter after declaring repeatedly during the campaign and in the weeks following the election that he would not raise the GET.
Abercrombie told KITV on Tuesday that he “refused to rule out raising the general excise tax and said even that may not be enough to fund the government and retirement system.”
On Friday, Volcanic Ash blogger David Shapiro wrote, “Looks to me like a big wink to legislators that if they pass a GET increase, he won’t veto it.”
It would be a face-saving maneuver by Abercrombie, a former legislator who believes a governor should honor the will of the Legislature. Lawmakers considered raising the tax as recently as last session (though there would also have been an exemption for some nonprofits).
“He has said he is open to all ideas to generate revenue for the state, that’s no secret,” spokeswoman Donalyn Dela Cruz told Civil Beat this week. “He has put out his proposals (for the deficit), which have been heavily criticized, though many have come from previous sessions. He said in his State of the State that the administration is bringing back these ideas that were heavily ignored. So, let’s take a look at these. This is a time where he is open to ideas because of the $844 million deficit.”
The GET is a charge on the gross revenue for business transactions in Hawaii. Most are subject to a 4 percent tax; wholesale transactions get a 0.5 percent tax and insurance commissions are charged 0.15 percent. On Oahu, another .5 percent is charged. (Businesses are permitted to pass on the charge to their customers by by charging 4.166 or 4.712 percent. To learn more, please see our page that explains the GET.)
It is not a sales tax, but it does seem like one. When a customer buys a pair of socks from Macy’s, they pay the GET; Macy’s pays the GET on renting space at Ala Moana Center.
“The GET is imposed on everything except the rooster’s crow this morning that woke you up,” explains Lowell Kalapa, president and executive director of the nonprofit Tax Foundation of Hawaii. “It is applied to every single transaction.”
Nonprofits are not exempt
“When Catholic Charities buys a bag of rice for a food line, it pays the GET,” said Kalapa. “It is imposed for the privilege of doing business in the state.”
Sen. David Ige, chairman of Senate Ways and Means, says there are three components involved in balancing the state’s budget: cuts to departments, the governor’s proposals to raise revenue and costs from labor contracts.
All three are in flux and the outcomes are difficult to predict, but Ige doesn’t foresee a GET hike coming into play.
“Unless someone else shows an interest as an option to raise the GET, we are not inclined to run into a brick wall,” said Ige, pointing to past unsuccessful efforts. “That’s the way we look at it. So, we are trying to have public hearings on the governor’s proposals to see if we can protect those who deserve protection and still generate sufficient revenues.”
Rep. Marcus Oshiro, chairman of House Finance, has a similar take on the GET.
“Right now we are waiting to see what comes from the Finance Committee and from subject-matter committees regarding revenue measures and cost-cutting measures,” he says. “That will kind of give us some universe on what type of total deficit we have to address.”
The administration expects to get all its budget requests in this month. Oshiro then has to finalize the budget before sending it over to the Senate during the third week of March.
Oshiro agrees that it is tempting to look at raising the GET. But he says because it is a regressive tax an increase would fall hardest on those with the low- or fixed-incomes.
A better tact, Oshiro suggests, would be to look at ending some GET exemptions — for example, on some businesses. “I think my first job is to explore those that are not paying the GET,” he says.
Business, as you might expect, abhors the idea of GET hike.
“I have not heard about proposals to raise the GET — not recently — but that is always an option we are aware of,” says Jim Tollefson, president and CEO of the Chamber of Commerce of Hawaii. “We are still opposed to any GET increase. We have more than 1,000 members that employ 200,000 people across the state. Eighty percent of them are small business.”
Tollefson adds that most of the chamber’s members are on Oahu and thus paying a higher GET rate.
Randy Perreira, executive director of the Hawaii Government Employees Association — the state’s largest union — has a more nuanced view.
He agrees the GET is regressive and affects all business — “the biggest drawback” to raising it. But he feels the state is still coming to grips with the hard fact that there is only so much revenue to pay for essential government services.
“What we believe should be done this year — it’s not an election year — is not look at the GET iteslf but the tax code in total,” he said. “When Ben Cayetano was governor a number of years ago, raising the GET was considered while adjusting tax rate on incomes tax, like withholding less, adjusting the code elsewhere, making (GET) exemptions for food and medical but looking at it in total to see how the revenue picture could be improved but not burden residents.”
But Perreira also says “a reality is beginning to dawn” when it comes to facing the state’s dire fiscal straits.
“That is why gaming has not been dismissed and the GET at least remains in the conversation,” he said. “People are very concerned if we cut off all the options and are left with stark choices. Do you tax the rich more? From a populist standpoint that would not be a good idea.”
Rep. Karl Rhoads, chairman of House Labor and Public Employment, tried to tax the rich just last session. His idea was to levy a 6.2 percent surcharge on those earning more than $106,000, because that is the level of income where people stop paying Social Security.
“I didn’t bother to bring it back this year,” he said, frustrated that the idea didn’t attract much support.
(In 2009, the individual income tax brought in 28.4 percent of state revenues.)
Rhoads does not think a GET increase will happen, and says he has not heard such talk — “Although you never know for sure,” he adds.
But, he echoes Perreira when he says this: “At what point do people realize or at least think about it being worth paying higher taxes to get this stuff — to pay to end furloughs, to have agricultural inspectors and on and on? Because if we don’t pay for it we are going to lose it. There seems to be a disconnect between paying taxes and getting stuf.”
The Tax Foundation’s Kalapa thinks that a progression of events suggest the state is “kinda being nudged along, being massaged, into accepting a GET increase,” he says.
“When (Sen.) Josh Green says we are not going to tax sugary drinks and not have new taxes, you may get to the point where you have to consideer the GET,” he adds. “With all cuts in human services and education, it comes down to really fine-tuning and accounting for the relationship between the taxes we pay and the benefits we get.”
Labor lobbyist, and Abercrombie ally, John Radcliffe delivered an unvarnished message to university professors recently. Here’s what he had to say:
“There is no legislative stomach for increasing taxes either. The soda tax, liquor tax, tobacco tax, pension tax, plastic bag tax, are probably all going to die. Raising the GE Tax is possible — but improbable — but as a last resort — it will happen.”
If the GET is to be adjusted, it will have to happen soon.
First “decking” of bills (meaning when bills are in their final form and ready for passage) is March 4; the first crossover of bills going from one chamber to the other is March 10; and the budget faces two deadlines, March 14 (decking) and March 16 (crossover).
There also has to exist a “vehicle,” or bill, related to the GET in order to raise it — a bill that calls for a tax hike (although lawmakers have been known to take a remotely related bill and turn it into whatever they want to get something passed).
In fact, there is such a vehicle: House Bill 567, an omnibus tax bill “to provide tax equity and stimulate the economy by increasing general excise tax rates, reducing income tax rates, establishing hotel construction and remodeling tax credit, and making the $1,144 personal exemption to the income tax permanent.”
The measure cites a 2005 report from the Tax Review Commission that recommended as much.
The bill never received a hearing in Oshiro’s House Finance Committee, and the “first lateral” deadline for getting bills to their final committee was Feb. 17.
But, desperate times could call for desperate measures, and, as Rhoads said, “Anything can happen.”
Of note: HB 567 was co-introduced by House Speaker Calvin Say, who has opposed a GET tax in past session, much to the consternation of labor unions.