Hawaii Gov. Abercrombie Calls for Alcohol Tax Increase, Soda Tax, Tax on Pensions

January 25, 2011

Seven weeks into his tenure, Hawaii Gov. Neil Abercrombie (D) proposed tax changes in his State of the State Address. Citing a projected fiscal deficit of $844 million, Abercrombie recommended repealing the state tax deduction for state taxes paid and extending the income tax to include pension income (although ensuring "that those who are most dependent on their pensions will not be taxed").

In part due to the end of temporary federal stimulus aid, Abercrombie urged legislators to consider cutbacks in welfare spending like Temporary Assistance for Needy Families and Medicare Part B for retired state workers. On the tax side, the governor proposed increasing the alcohol tax by 50 percent, raising about $20 million a year, and establishing a soda tax that would generate $50 million a year.

His plan would also raise "impact fees" on time-share properties to equalize the current hotel room tax, an increase of 2 percentage points to 9.25 percent. He would also shift funds from the Hawaii Tourism Authority towards environmental protection, improvements to public facilities, and advancing Hawaiian culture and the arts. The sales tax ("general excise tax" in Hawaii) would remain where it is, a key campaign pledge.

Hawaii is tied for the highest top state income tax rate and also instituted a series of tax increases on alcohol, real estate, and on the hotel industry two years ago.

The Honolulu Star-Advertiser has come out in favor of the program:

Further tax changes include repealing the deduction for paying state taxes, which he rightly characterizes as an "absurdity." And retiree pension plans should be taxed the same as other income, he said, underscoring that the more financially strapped retirees will be exempted.

More on Hawaii here.

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