Hawaii Legislature Overrides Veto To Pass Cigar Tax

As if things weren’t expensive enough in Hawaii.  Well, it’s about to get more expensive.  There were a set of tax increases put forth by the Hawaii legislature to help with budget deficits that the governor vetoed.  Well, the legislature overrode that veto and, along with other tax increases, the tax on the wholesale price of pipe tobacco and chewing tobacco will rise from 40% to 70%!!  Cigar tax will rise from 40% to 50%.  There’s even an increase in cigarette tax.  You can read the full story below…  It’s not looking good for the smokers in Hawaii.

MAY 9 – The dramatic final week of the state legislative session wound down yesterday with Democratic lawmakers following through on a promise to override Gov. Linda Lingle’s vetoes of four measures that will increase taxes to balance the state budget.

Hawai’i now has the highest income tax rate for top bracket earners in the country, and visitors paying $200 a night for a hotel room will pay an additional $4 in taxes by 2011.

Leveraging their overwhelming majority in the state Senate and House of Representatives, Democratic legislators increased state income taxes on the wealthy, the hotel-room tax, the conveyance tax on the sale of luxury and second homes, and a tax on tobacco products, such as chewing tobacco, pipe tobacco and cigars.

“Contrary to what the governor says, she has not given us options,” said state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), speaking after the Senate session yesterday.

“Her option is to basically tell us ‘trust me,’ and I can fill a $300 million puka in the budget with collective bargaining (concessions) without laying off people. The problem, of course, is that we have an obligation to balance the budget and we can’t balance it on a promise to do something,” said Hanabusa. “What we wanted to do was protect the working people and the middle class as best we could.”
Lingle’s vetoes

Standing before hundreds of people massed in the state capitol rotunda Thursday, Lingle vetoed the tax increases, saying they would discourage investment, hurt small-business owners and hamper the visitor industry at a time when it is struggling. She urged residents to contact their lawmakers and ask them not to override her vetoes.

Yesterday, speaking to reporters at the Capitol, Lingle said Democratic lawmakers “went back to what they know best” by raising taxes. It will now be a “very steep climb” for the state to get out of the current fiscal crisis as new revenue projections due May 25 are not expected to be positive.

“The tax increases the Legislature passed is going to make our economic recovery more difficult and will result in more job losses in our state,” said Lingle. “It’s going to be a challenging couple of years ahead.”

On Thursday, the state House and Senate gave final approval to a two-year state budget that contains $800 million in general-fund spending cuts and the elimination of 200 mostly vacant state jobs.

Lawmakers could not have balanced the budget without $942 million in federal stimulus money approved by President Obama and Congress and the roughly $250 million in tax increases.

Over the past year, because of the recession, state revenues have fallen by more than $2 billion, forcing both Lingle and lawmakers to make substantial spending cuts.

Lingle insists that lawmakers could have balanced the budget without the tax increases. She proposed furloughs of state workers and adjustments to healthcare benefits.

“There are tough choices to be made, but we could have made them during our budget process so we wouldn’t have to raise taxes,” said state Senate Minority Leader Fred Hemmings, R-25th (Kailua, Waimanalo, Hawai’i Kai). “How much sacrifice has been given by government labor unions? I challenge you, stand up and tell me what sacrifice that special-interest group has made. Everyone else in the state (private and public) … is taking a hit.”
‘It’s their life’

As the House closed its doors yesterday, state House Speaker Rep. Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), urged lawmakers to go out into the community and take the pulse of constituents because seven months from now, the Legislature will be back at it again.

“Our journey has just begun,” Say said. “The bills we overrode today were there to stabilize the economy in the long run. I’m proud of the accomplishments of the House.”

Lawmakers wrestled with their consciences yesterday, said House Minority Leader Blake Oshiro, D-33rd (‘Aiea, Halawa Valley, ‘Aiea Heights). They had to weigh the impacts of tax increases with the constitutional necessity of balancing the budget while not cutting important programs.

“We had little or no other alternative,” said Oshiro, immediately after the House adjourned for the year.

Of the four measures up for vote yesterday, the one receiving the bulk of the discussion was the 1 percent increase to the transient accommodations, or hotel-room, tax.

“We cannot take our industry for granted,” said Rep. Gene Ward, R-17th (Kalama Valley, Queen’s Gate, Hawai’i Kai).

Rep. Kymberly Pine, R-43rd (‘Ewa Beach, Iroquois Point, Pu’uloa), argued that raising the tax a percentage point will affect visitors coming to Hawai’i on vacation.

“I am very emotional about this bill,” Pine said. “The hotel workers are very concerned because they saw a decline in business when gas prices were soaring. It isn’t just a question of money, it’s their life.”
Affected taxes

Starting July 1:

• The state income tax will increase from 8.25 percent to up to 11 percent on single taxpayers who make $150,000 or more a year, heads of households who earn $225,000 or more a year, and couples who make $300,000 or more a year. The tax increase would apply to roughly the top 2.6 percent of state taxpayers and is expected to generate more than $96 million in revenue over the two-year term of the budget.

• The transient accommodations tax will go up by 1 percentage point in July — from 7.25 percent to 8.25 percent — and another 1 percentage point in July 2010 — from 8.25 percent to 9.25 percent. The tax increase would apply to operators of hotel rooms, apartments, condominiums, beach houses and other places rented to visitors or local guests. The increase would likely be passed on to consumers and is expected to generate more than $88 million over the two-year budget term.

• The conveyance tax on the sale of properties of $2 million or more and on second-home purchases will rise in an effort to generate $8 million in revenue over two years.

• The tax on the wholesale price of tobacco products, such as chewing tobacco or pipe tobacco, will rise from 40 percent to 70 percent starting at the end of September. The state’s tax on the wholesale price of cigars would increase from 40 percent to 50 percent, and smaller cigars that resemble cigarettes would be taxed like cigarettes.

• The state’s 10-cent-per-cigarette tax will rise by 2 cents in July, in addition to the 1-cent increase already scheduled, bringing the tax to 13 cents.

http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/200905090230/NEWS02/905090351

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1. 

   Se7en_Vandalay says:

   May 12, 2009 at 9:56 am

   Unbelievable! Shouldn’t legislators be required to have a working knowledge of economics. These tax increases will NOT solve their budget problems, it will make them worse. It’s plain silly to raise state tobacco tax when the Fed just did it (are you listening Colorado?). But even sillier to further punish the states income earners and tourism dollars. It’ll be interesting to see this play out. Thanks for the post Ricky.