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

1 min readBy: Sarah Hyon

Seven weeks into his tenure, Hawaii Gov. Neil Abercrombie (D) proposed taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. 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 taxA soda tax is an excise tax on sugary drinks. Most soda taxes apply a flat rate per ounce of a sugar-sweetened beverage. 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 taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. (“general excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. ” 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.