Ka Wai Ola - Office of Hawaiian Affairs, Volume 5, Number 7, 1 July 1988 — Taxes and You [ARTICLE+ILLUSTRATION]

Taxes and You

i By Lowell L. Kalapa, Director Tax Foundation of Hawaii

X^VS TAXES*U

Taxes—State's Major Resource

After a special session in mid-May to correct some appropriation measures, the legislature finally closed shop for the year and headed for the campaign trail. lndeed one of the major points to be made by incumbent legislators as they campaign for reelection, is the pork-

barrel that they brought home for their respective districts. Be it a new school gymnasium or a traffic light at a busy intersection, incumbent legislators ean elaim that they were responsible for getting this or that state project funded. Little do they acknowledge that in the long run, you and I pay for these projects anyway, with the taxes they take out of your paycheck or the taxes I pay every time I go to the grocery store. Sometimes the laek of putting together the raising of the money and the spending of those dollars is lost on all taxpayers. To get a better grasp on all this state spending, it might be worthwhiile to go over how the money gets into the public treasury whieh is ultimately spent by legislators. There are many different types of funds available to lawmakers. There are special funds where the monies in that fund may be used only for the purpose designated, there are federal funds whieh must be spent as dictated by federal law or programs, and then there is the general fund.

i ne general rund is Dy tar tne one wnere lawmakers have the greatest discretion. In other words, because the monies in the general fund are not earmarked for any specific purpose, lawmakers ean spend on whatever they please. How are the dollars in the general fund raised? More than 90 percent of money in general fund eome from taxes, with the general excise tax or sales tax contributing the largest share of more than 46 percent of the total. Ineome taxes, on both corporate and personal ineome, contribute the second largest pieee of the pie with more than 32 percent coming from this source. Together, the general excise and ineome taxes contribute more than three-fourths of the dollars in the general fund. The rest of the dollars eome from other specific excise taxes such as those imposed on liquor and tobacco, taxes paid in-lieu of the general excise or ineome taxes such as the public service company tax or the bank franchise tax. The only direct taxes paid by us taxpayers whieh do not go into the general fund are those whieh are earmarked for the transportation funds such as the fuel tax and the motor vehicle weight tax. So mueh for percentages, what is the magnitude of those dollars? It is estimated that by the time the state accountants close their books on June 30th, the state will have collected more than $1.8 hillion in

general fund taxes. More than one-half will have eome from the general excise tax that you and I pay at the check-out stand. Our paychecks will be a little poorer by more than $550 million withheld by our employers as well as paid this past April. Thus, it would appear that the state is rolling in money. Just as the amount of money the state eollects has increased with a growing eeonomie base, so has the number of public programs initiated by lawmakers. If past practice holds true, the bulk of general fund expenditures will go for education, with more than one-fourth of the pie being spent on our public schools and libraries. A little more than 10 percent will go for higher education at the University of Hawaii and the system of community colleges. Health and welfare services provided by the state will take another 20 percent of the pie followed by repayment of pnneipal and interest on money borrowed by the state for capital improvements. About 17 percent of the general fund expenditures go for this repayment of debt. General government administration accounts for about 10 percent of general fund expenditures while the money to cover medical and retirement benefits for state employees takes about 9 percent of spending. The Office of Hawaiian Affairs also receives its funding through the general fund. Last year's legislature set OHA's budget at $1.2 million for eaeh of the fiscal years, 1988 and 1989. This year's legislature added another $71,000 in general funds and an equal amount in special funds for OHA's operational budqet.

In appropriating these additional funds, the legislature requested OHA to work with other agencies serving Hawaiians and native Hawaiian children to eliminate the duplication of services provided. The legislature noted that OHA is providing services whieh may already be provided by public and private agencies such as the departments of health, human services, Hawaiian Home Lands, Alu Like and the University of Hawaii. The additional funds were also granted to formalize operating procedures for the Board as indicated by the 1986 management audit of OHA and to provide additional resources to meet the increased demand for administrative and legal services necessary to develop a land management plan as OHA acquires title to certain lands. While OHA's budget may appear minuscule in comparison to the size of many other state programs, it is the fact that together, all of these general fund programs benefit from the millions of dollars that you and I pay as taxpayers. Although we all like to sit around and eomplain about how mueh in taxes we have to pay, or why we should pay 4 percent on our food, we are all benefactors of the taxes collected. Thus, we are our own worse enemy, the more we want state government to provide, the more we end up paying as taxpayers.