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The Star-Advertiser reported today on an Abercrombie administration proposal to eliminate the tax deduction for state taxes paid. But the slant of the entire article is simplistically anti-tax, from the headline, “Tax deduction repeal would pinch majority,” to the selection of included quotes.

How different would the story have been if it followed a headline something like: “We’re all in the canoe on tax deduction repeal,” stressing its fairness.

But at least the story adds some numbers. The average tax increases used as examples are certainly amounts that we can absorb in order to avoid cutting even more programs and services than will already be necessary. The high income taxpayer example would result in paying an additional seven-tenths of one percent of adjusted gross income in taxes.

Remember, after all, that Hawaii has been leading the nation in the number of millionaires per capita, while talking “poor mouth” on paying our way (see this link for the numbers).

I’m with the governor on this tax measure. It is broad based, spreads the pain proportionally, and has limited impact on lower income taxpayers.

It’s really an income tax increase that could be accomplished by restoring marginal tax rates back to where they were in 1998, but couching it as “eliminating an exemption” eliminates the politically charged “tax increase” label.

Clearly, we need additional revenue. Raising it from a broad base of taxpayers is the fairest way to do it, rather than picking on certain groups.

In my view, an increase in the General Excise Tax, which Abercrombie pledged to avoid during the campaign, would be similarly broad based. If coupled with low income tax credits, it would, again, at least be spread relatively fairly and across a broad base of taxpayers. It keeps is all in the same canoe, as the governor likes to say.

Taxing the pensions of state retirees, along with proposed benefit cuts, are a different story.

A reader called my attention to SB 162, scheduled for a public hearing Friday morning. It is a pretty innocuous bill regarding “comfort letters” issued by the Dept. of Taxation. It tinkers with language but doesn’t appear to make any substantive change.

But according to the hearing notice Friday’s Ways & Means Committee meeting, the bill is being gutted and replaced with a bill to tax pension income of all taxpayers, subject to some income thresholds.

A link is provided to the proposed SD1, but unfortunately it consistently crashes my browser.

The one time I was able to get a glimpse at the bill before it crashed, I recall that it eliminated the exemption for pension and annuity income for single taxpayers with $75,000 or more in federal adjusted gross income; $100,000 for heads of households; and $125,000 for persons filing joint returns.

It’s a sneaky way to potentially move this bill along, since SB162 has only a single referral to WAM.

It does seem that there could be legal issues, based on an Oregon Supreme Court case regarding taxation of pensions.

The Oregon case (Hughes v State, 1992) has a tortuous history, traced out in this issue brief prepared by their legislative research service, and a detailed chronology with citations.

August 6, 1992: The Oregon Supreme Court rules that the state may tax PERS benefits ( Hughes v. State of Oregon8). However, the court determined the imposition of income taxes was a breach of the workers’ contractual rights, and that PERS retirees had to be compensated for taxes they paid on benefits that were attributable to service before the effective date of the Act (September 28, 1991).

When coupled with the recent Hawaii Supreme Court ruling regarding retiree health benefits, the taxation of pensions would be extremely tricky and could only be implemented in a limited way, if at all.

Attorney Paul Alston, writing in Civil Beat, summarized the court’s decision:

The Supreme Court has made clear that the legislature can “reduce benefits as to . . . persons already in the system [insofar] as their future services were concerned,’ but it cannot “reduce the benefits attributable to past services.”” .