Report Title:
Taxation; Study
Description:
Requires the department of business, economic development, and tourism to compare and contrast three alternative tax proposals. Appropriates funds for study.
|
HOUSE OF REPRESENTATIVES |
H.B. NO. |
2357 |
|
TWENTY-FIRST LEGISLATURE, 2002 |
||
|
STATE OF HAWAII |
||
|
|
A BILL FOR AN ACT
RELATING TO THE STUDY OF THREE TAX PROPOSALS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. Hawaii is at a historic turning point in its economic development brought on by the disappearance of the pineapple and sugar industries, the ongoing local contraction of defense spending, and the emergence of a fiercely competitive world marketplace of products and services. At this critical juncture, we can continue doing business as usual, and watch our job market slowly deteriorate while realistic hopes for prosperity wither away; or we can face up to the reality of our situation and find the courage to act wisely and decisively.
Although economic prosperity grows out of a complex web of interacting social, political, and economic factors (rather than just one controlling circumstance), one has to start somewhere. Hawaii's tax code has special potential as an instrument for revitalizing our business environment. Although it profoundly impacts the whole of society, especially our fiscal and investment climate, it can be altered with relative independence. Moreover, our existing state tax code is one of the most powerful factors contributing to an unhealthy business climate in Hawaii. Among the drawbacks (too numerous to list) to our existing state tax code are:
(1) It unfairly distributes the tax burden between the lower, middle, and upper income brackets;
(2) It is outrageously complex, confusing, and deceptive;
(3) It drains off an incredible amount of human and financial resources into the unproductive activities of taxpayer compliance and government administration;
(4) Its maze of incentives and disincentives generates business and consumer decisions which in turn create market distortions; and
(5) Because it is inflationary, it puts Hawaii's products and services at a competitive cost disadvantage relative to other states.
Various interest groups may differ about whether the amount of the tax burden on the people of Hawaii is too high, too low, or just right; but there is little room to deny that our system of state taxation hinders job creation by discouraging people from starting or relocating a business in Hawaii.
Out of these concerns emerges the ambitious approach in this Act, referred to as the "Yoshinaga Proposal For Comprehensive State Tax Reform" encompassing a dramatic overhaul of Hawaii's state tax code wherein all but three of Hawaii's eighteen separate state taxes (those imposed on alcohol, tobacco and cigarettes, and fuel) are repealed in favor of one simple and broadly based, single-rate income tax. With one compelling exception, all deductions, adjustments, exemptions, and credits are completely eliminated: that one exception being a deduction for the cost of a business purchase of products and services from another Hawaii business entity also subject to this tax. As a result, this proposed tax confers no special preferences on any particular kind of income or business. No type of income, whether it be wages or investment; no recipient of income, whether it be an individual, a corporation, or any other type of business; either escapes taxation or is granted a special tax break. All income, from all sources, and to all recipients is taxed at the same rate. This proposal is truly conceived in the virtue of simplicity and all of the benefits it creates. Gone are the mysterious, dangerous, and burdensome complications usually associated with calculating and reporting tax liability. Gone are the incentives to make business decisions (that would otherwise be unreasonable) merely because of tax considerations. Gone are the incentives to contrive an increase in operating expenses to reduce artificially one's taxable profit when the rational objective should be to reduce unnecessary expenses and thereby increase efficiency. Gone are the de facto tax subsidies for any and all kinds of operating inefficiency. Although adopting this proposal for comprehensive tax reform requires a complete reconceptualization of Hawaii's tax structure and tax environment, the significant benefits inherent in this proposal accrue to an extraordinarily wide range of interests encompassing those of taxpayers, job seekers, and job-creating entrepreneurs.
At the same time, two more modest tax proposals were suggested in the final report of the 1996 Tax Review Commission. One recommends considering the replacement of Hawaii's existing general excise tax with a straightforward retail sales tax. The other recommends considering the replacement of Hawaii's existing general excise tax with some kind of value added tax. No draft legislation has been suggested by the 1996 tax review commission for its own two recommended proposals. In contrast, the "Yoshinaga Proposal For Comprehensive State Tax Reform" has been introduced as H.B. No. 114 (2001). Responsible consideration or enactment of any substantive tax reform, be it dramatic and comprehensive or more modest and narrowly defined, requires detailed exploration of the consequences for tax revenue and public expenditures. The purpose of this Act is to conduct that detailed exploration of these three methods.
SECTION 2. The department of business, economic development, and tourism shall conduct a two-part, in-depth study of the three proposals described in section 1. In the first part of the study the department shall use, as the starting point for the study, H.B. No. 114 (2001) for the single-rate/single-tax proposal; the form of a sales tax from another state as it would apply if enacted in Hawaii in lieu of a general excise tax, and the form of a value-added tax as it would apply in Hawaii if enacted in lieu of a general excise tax. The study shall evaluate each proposal in terms of:
(1) Its consequences for Hawaii's economy and business environment;
(2) The technical and policy problems likely to be encountered in implementing the proposal, and means by which those problems can be minimized; and
(3) A determination of the specific percentage rate of tax required, and the modification, if any, that must be made in order for the proposal to be revenue neutral, that is, to raise no more nor less revenue than would be raised by the tax or taxes being replaced in the proposal.
Part two of this study is intended to provide detailed background information crucial to evaluating the results of the comparative analysis specified in part one. Part two shall, therefore, include survey of at least one hundred American corporations having the largest gross revenues to ascertain their dominant considerations precluding Hawaii as a viable base of operations or location for corporate headquarters. The point of this survey is to confront the way corporate America already perceives Hawaii's business environment to determine whether any recurring elements of that perception provide guidance in assessing proposed changes to our existing state tax code.
The department of business, economic development, and tourism may contract out all or part of the research and analysis of this study to complete the study in a timely manner. The department of taxation shall provide any data or assistance required by the department of business, economic development, and tourism. The department of business, economic development, and tourism shall report its findings and recommendations to the legislature no later than twenty days before the convening of the regular session of 2003.
SECTION 3. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2002-2003 for the purposes of this Act.
The sum appropriated shall be expended by the department of business, economic development, and tourism.
SECTION 4. This Act shall take effect upon its approval.
|
INTRODUCED BY: |
_____________________________ |