Gov. Linda Lingle proved she has a trick or two up her political sleeve when she took aim last week at a perennial GOP boogeyman, the 4 percent general excise tax levied on most consumer and business purchases of goods and services.

Lingle’s proposal to eliminate taxes on consumer purchases of a handful of basic food products was touted in a press release as a way to benefit ‘those struggling to feed their families.’

But the proposal, part of a broader package of tax-related measures the governor is asking the Legislature to pass, immediately stumbled over recommendations of the state’s Tax Review Commission, which was also at the Capitol last week briefing legislators on the results of its two-year study of Hawai’i’s overall tax structure and policy.

The commission, whose members were appointed by Lingle, specifically reviewed the general excise tax and concluded that creating exemptions for consumer purchases ‘is undesirable.’

‘The [c]ommission therefore cautions against approving proposals to exempt health care services, food, apparel or shelter, for example,’ the panel’s final report concluded.

The commission suggested that tax relief, if desired to achieve more fairness or equity, should be achieved through low-income tax credits or direct appropriations in order to enhance ‘transparency and accountability’ in the tax system.

Bashing the general excise tax has been a popular sport recently among politicians and the public, especially as taxes paid in Honolulu were boosted by the half-percent transit surcharge. But the commission’s report paints the GET as the Rodney Dangerfield of taxes because it gets so little respect despite functioning quite well.

At the big picture level, the commission says it is satisfied with the current structure and administration of the excise tax, which generates nearly half of all state tax revenues. The commission points out that 38 percent of the total GET, nearly 40 cents out of every dollar, is paid by visitors to the state, thereby reducing the tax burden on local residents.

‘We believe that the GET is a relatively efficient tax,’ the commission’s final report concludes. ‘[W]e believe it is a strong contender for the title as the most efficient substantial tax levied by any state.’

The commission also found that Hawai’i’s 4 percent rate is among the lowest in the nation, especially since other states often have local as well as state sales taxes. Hawai’i’s rate is still relatively low even after taking into account the so-called ‘pyramiding’ or compounding that happens when transactions between businesses are taxed and then taxed again when products and services are later sold to consumers.

William Fox, a consultant to the commission, says the actual rate due to pyramiding is about 5-6 percent, ’still low compared to other states, especially once you factor in the local option sales tax,’ commission minutes show. ‘There are 21 or 22 states with about a 6 percent state rate, and 34 states have a local option,’ Fox says.

Commission members cautioned that creating new exemptions from the GET will inevitably create a slippery slope as it will become more difficult politically to turn away other requests in the future.

In context, Gov. Lingle’s proposal has the elements of another well-executed political trick. She put the proposal to exempt food from the GET forward knowing that it runs directly counter to the strong recommendations of the tax review commission, leaving lawmakers to take the heat if they follow the professional advice of the Lingle-appointed commission. Pretty slick if she’s able to pull it off.

([www.iLind.net])

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