Ka Wai Ola - Office of Hawaiian Affairs, Volume 6, Number 12, 1 December 1989 — Somewhere under a rock is that state surplus [ARTICLE+ILLUSTRATION]

Somewhere under a rock is that state surplus

Taxes and Yon

By Lowell L. Kalapa, Director Tax Foundation of Hawaii

Although it will be a few weeks before the state officials revectl the actual size of the state surplus, there is no doubt that the number will be staggering. However, before anyone gets excited, remember mueh of the surplus was spent by

the 1989 legislature. It is estimated that the surplus figure could go as high as $700 million as of June 30, 1989. On the other hand, as a result of actions by the 1989 legislature, more than $475 million will be shelled out either in the form of tax expenditures (such as the $125 tax rebate) or in direct expenditures on state programs. Flush with surplus revenues, the constitutional limitation on general fund expenditures appeared to have had no effect on curbing the frenzied spending spree that characterized the last session. Legislators approved more than $369 million in programs and projects whieh put the state appropriations over the spending limit. Thus, lawmakers chose to spend the bulk of the surplus rather than attempt to reduce the burden of taxes we all pay here in Hawai'i. Taxpayers may be lulled into a sense of euphoria by the legislative rhetoric about returning tax dollars in the form of the $125 tax rebate credit. However, taxpayers should realize that lawmakers were almost embarrassed into such a generous credit, for they did little else for the taxpayer. True, the administration proposed some messing around with the ineome tax brackets and they threw another bone to taxpayers in the form of the credit for medical services. But overall, Kttle was done to truly reform the tax system and reduce the burden of taxes. To further confuse the taxpayer, pubKc officials fiddled with other parts of the state's financing system. Discreet accounting and some fancy footwork in new legislation will have the effect of hiding a lot of those general funds so that they don't ap-

pear as a part of the surplus. Nearly two years ago, the administration proposed, and the legislature concurred, that the Housing Finance Development Corporation could borrow up to $120 miKion from the general fund to get the state's affordable housing program off the ground. Now this money was never appropriated. Rather, it was an advance of money. So the borrowing was never counted against that constitutional spending ceiling. However, until thatmoney is "repaid," it does not contribute to the surplus. So, the general fund will be short those dollars whieh makes the surplus look that mueh smaDer. Another mattress the administration created to hide some of that general fund money was the establishment of a new special fund for the eonstruction of school faciKties. The fund wiD take $90 milKon per year in general excise tax collections that would otherwise have gone into the general fund. This wiD go on for the next seven years. Thus, the general fund wiU be "missing" nearly $200 miDion dollars when the auditors close the books next year. These are pretty heady numbers, enough to make your head spin — a hundred million here, a hundred million there. Believe it or not, pretty soon it adds up to real money. Could it be that the tax system is producing more money than we need? Indeed, it appears that anytime someone mentions that taxes should be lowered or that the surplus should be returned to the taxpayer, the prognosis is that there is a recession just around the corner, so taxes can't be lowered. When you eome right down to it, the state usually tells us that it needs the money. This catastrophic hocus-pocus is the standard excuse given by public officials in response to any proposal to reduce taxes. Crying "prudent" and "responsible" and fighting tooth and nail on any proposal that would reduce taxes, state officials have used this excuse to justify the high rate of taxation of HawaK's taxpayers. Unfortunately, the losers in this scenario arethe taxpayers who continue to be milked for more and more in taxes. The real question is whether or not government is justified in hanging on to taxpayers'

dollars when those very taxpayers could do as weD in holding on to those dollars. Now just around the corner, a citizen panel, whieh was given the mission to review HawaK's tax system, appe£irs ready to recommend that the level of taxes be reduced, a notion that borders on the sacrilegious for public officials whose very existence depends on ever growing revenues. WiD taxpayers again be denied real relief from the high level of taxes imposed by state and county governments in Hawai'i just because governm6nt "might need" the money? Certainly the administration and the legislature have set the stage to plead poverty onee more in the face of the taxpayer, pleading prudence in the face of tax relief. It seems that just as there is an opportunity for the taxpayer to find real reKef from the high taxes in Hawai'i, the state has been inspired to find ways to either spend the surplus or hide those excess dollars from pubKc view. As one observer described the situation, "Poof, and suddenly the surplus is gone." WiD the administration and the legislature teD you that there is no money in the tiD for tax relief? Do you mean to say that there won't be any appropriation bDls during the 1990 session? Could it be because that they spent it all last session? Perhaps lawmakers wiū eome to the HawaKan community to use HawaKan concerns as a reason for new and added spending. But wiD they forget that Hawaiians are also taxpayers and that HawaKans end up paying the same high level of taxes. Let's hope that the HawaKan community is not used as the scapegoat to keep taxes high, because as taxpayers, we aD end up paying the bill. This is the lastcolumn of"Taxesand You"to be featured in Ka Wai Ola O OHA. The eolumn has been a regular feature since March 1988. Mahalo to writer Lowell Kalapa, director of the Tax Foundation of Hawaii for sharing information on taxation with our readers. Next month, Ka Wai Ola O OHA will begin publishing articles featuring Hawaūans in business, entrepreneurs, and general business related information.