Lawmakers on Tuesday managed to shake loose a few clues about possible tax increases being considered by Gov. David Ige as he seeks to raise money to cover the cost of state government operations amid a pandemic-induced shortfall.
Ige has said he may propose some tax increases, but state Finance Director Craig Hirai has been reluctant to disclose details.
Hirai told House Finance Committee Chairwoman Sylvia Luke Tuesday that the administration’s specific plan is “kind of embargoed right now” while the budget staff considers other options, such as tapping into unused money in state special funds that could make some tax increases unnecessary.
However, he suggested in response to questions during a tense exchange that the carbon and sugar taxes may be among the increases.
Luke, one of the most powerful members of the Legislature, reminded Hirai the administration was legally required to present the Legislature with a balanced budget last month. That comes with an obligation to provide the details, including specifics about any tax increases, she said.
“You cannot just present the plan and say the details are embargoed,” she said. “There is an obligation to be honest with the public, and honest with the Legislature to provide the details on what tax increase assumptions were built into the financial plan that was submitted on Dec. 21.”
“I don’t have my list with me,” Hirai said, which apparently did nothing to appease Luke.
“So, let me just ask you then, are you planning to raise the carbon tax?”
“Possibly,” Hirai replied.
“Are you planning to institute a sugar tax?” she asked.
“Possibly,” Hirai said.
“Are you planning to raise the GET (general excise tax)?” she continued.
“I don’t think so,” Hirai replied.
A carbon tax would be a tax on the consumption of fossil fuels, while a new “sugar” tax may resemble the soda tax that was proposed by former Gov. Neil Abercrombie in 2011. Lawmakers rejected the soda tax idea that year, and it was never adopted.
Hirai then volunteered that “some other health care taxes” could be used to increase reimbursements. He apparently was referring to federal reimbursements that are paid to the state for programs co-funded by the state and federal governments.
Hirai offered no further details on the “health care taxes” but said the administration is also considering issuing bonds to borrow money that would then be used to fund programs such as the Rental Housing Trust Fund.
The rental housing fund is used to develop affordable rental housing, and is now financed partly with the proceeds from the state conveyance tax on sales and leases of property.
However, if the rental housing fund were instead financed with borrowed bond money, the cash from the conveyance tax could be diverted to help the state cover its other operating expenses.
Hirai also said the administration’s financial plan assumes the state will withhold from the counties at least some of the hotel room taxes that are normally distributed to the counties each year.
State tax collections have gone into a steep decline amid the pandemic, dropping from an all-time high of $7.14 billion a year ago to $6.69 billion in the fiscal year that ended June 30. To cope with that sudden drop, the administration restricted hiring and spending last fiscal year, and used $648 million from the state’s “rainy day” budget reserve fund to help balance the budget.
Tax collections are expected to drop again this year to $5.96 billion. The administration in October borrowed $750 million to help make up the difference in the current fiscal year that ends June 30. Ige has warned departments to prepare for budget cuts in the years ahead.
Final decisions on any administration proposals for tax increases presumably will be made before Ige’s state of the state address on Jan. 25, which is the day the administration must submit to the Legislature the package of bills it hopes to pass this year.
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