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Desperate Hawaii Turns To Taxing Tourists, Wealthy

Rep. Cynthia Thielen: "The message going out there is that Hawaii is a tax hell."

AP  May 10, 2009

HONOLULU — Hawaii raised its nightly tax on tourists by more than one-fourth Friday and increased its top state income tax rate to the highest in the nation.

Majority Democrats overrode Republican Gov. Linda Lingle's vetoes of four tax hike measures, which will make Hawaii vacations more expensive, force the state's top 2 percent earners to pay more, heighten fees on high-end property sales and raise the price of non-cigarette tobacco products.

"The message going out there unfortunately is that Hawaii is a tax hell. Hawaii has increased the taxes on the visitors coming here," said Rep. Cynthia Thielen, R-Kaneohe-Kailua.

The hotel tax increases mean a $150 hotel room would cost about $3 more per day. The tax is rising 28 percent, from 7.25 percent to 9.25 percent, over the next two years.

The idea was to make tourists pay for Hawaii's state government budget shortfall.

"No one likes to raise taxes. But let's face it. Let's be real. If you're going to raise the tax, the visitor industry is a less bitter pill to swallow than a tax on local people," said Sen. Clayton Hee, D-Kahuku-Kaneohe.

Lingle was not pleased to hear that Democrats, who control nearly 90 percent of the Legislature, used their political power to trump her stern resistance to tax increases.

"They went back to what they know best, which is to raise taxes and not work in a collaborative way," Lingle said.

Lingle said island residents are on her side, as shown by the more than 400 people who rallied behind her earlier this week as she publicly vetoed the taxes increases in the Capitol rotunda.

But Democrats say they wanted to spare middle-class residents from having to bear the brunt of the state's new tax burden.

"We don't expect this increase to drive tourists away," said Rep. Joey Manahan, D-Kalihi-Kapalama.

To Democrats who dismissed the hotel tax as costing only a few extra dollars a day, Republican Sen. Sam Slom said they're ignoring the job losses they could cause if the tourism industry tanks.

"Those legislators that think its OK because we're just taxing the tourists are absolutely wrong," said Slom, R-Diamond Head-Hawaii Kai. "If this industry continues to sink, there will be more layoffs in this industry and then we'll have more negative impact across the state."

The tax increase is expected to raise nearly $30 million in its first year and $60 million in 2011.

The income tax increase will make Hawaii's wealthiest residents pay 11 percent taxes, making the state's top tax rate even higher than California's, with its maximum rate of 10.3 percent.

The tax hike applies to individuals earning more than $150,000 annually and joint filers who make in excess of $300,000.

Opponents of the income tax hike said it won't only hurt the wealthy because it will also affect 27,000 small business owners.

"A tax increase will put an unnecessary strain on everyone," said Rep. Kymberly Pine, R-Ewa Beach-Iroquois Point. "This could mean more business closures, layoffs and fewer job opportunities."

Democrats accuse Lingle of pushing the hard decisions onto them by refusing to consider taxes and insisting that lawmakers pass a budget with about $300 million in labor savings, which would come out of the pockets of public employee unions. Legislators were unwilling to do that because they said it would undermine the unions' negotiating rights.

Perhaps not coincidentally, the new tax increases and others passed earlier in the session also total about $300 million.

"These targeted and modest tax revenue generations measures are the reasonable approach, which we unfortunately have to take," said House Majority Leader Blake Oshiro, D-Aiea-Halawa. "We need to be responsible."

The income tax increase on the more well-off is expected to raise nearly $25 million next year.

The tax hike on exchanges of properties worth more than $2 million is expected to raise $7 million next year.

The tax increase on non-cigarette tobacco products like snuff will go from 40 percent to 70 percent, and the levy on cigars increases to 50 percent. It will generate about $1 million.

Lingle previously signed a 4-cent per cigarette increase into law that would raise more than $22 million next year.

Rep. Cynthia Thielen: "The message going out there is that Hawaii is a tax hell."
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