On a day rich in political theater, Gov. Linda Lingle stood before several hundred people in the state Capitol and vetoed tax increases she warned would further damage the state's sagging economy.

State House and Senate leaders vowed to override her vetoes today — the last day of an extended session — and portrayed Lingle's public appearance as a publicity stunt indicative of her lack of a detailed plan to close the state's budget deficit.

While the crowd chanted "veto, veto, veto," the Republican governor vetoed bills that would increase state income taxes on the wealthy, the hotel-room tax, the conveyance tax on the sale of luxury and second homes, and tobacco products such as chewing tobacco, pipe tobacco and cigars. The governor signed a bill that increases the state's cigarette tax.

The crowd cheered as she signed each veto, laid out next to one another on a table beside her podium, and labeled it with a red "Veto" stamp.

"They can't tax their way out of this economic crisis. It just doesn't make sense," Lingle said of majority Democrats. "It (the tax increases) is not just about people who have a lot of money, it's about all the people of Hawai'i. It's just not fair. It's not the right thing to do at this time."

State Senate Majority Leader Gary Hooser, D-7th (Kaua'i, Ni'ihau), mocked Lingle for what he described as "a grand extravaganza, to put on a show like ancient Rome."

House and Senate leaders said they believe they have the two-thirds' votes necessary to override the vetoes today. Lawmakers extended the 60-day session by two days to trigger a requirement that the governor act on bills passed within the last 10 session days before adjournment.

State House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo Valley, Wilhelmina Rise), said the tax increases are necessary to balance the state's budget. Without the tax increases, he said, lawmakers would likely have had to make larger spending cuts or adopt a broader tax hike such as raising the state's general-excise tax.

Say and state Senate President Colleen Hanabusa, D-21st (Nanakuli, Makaha), said at a news conference before Lingle's appearance that the governor presented lawmakers with a spending plan that does not add up. Most significantly, the governor has said she wants to reduce labor costs by $278 million through collective bargaining with government unions, but lawmakers question how they can use that figure when the talks are in progress.

"We believe that the Legislature, by passing this budget, it is our statement that we tried to minimize the impact on the poor and the middle class," Hanabusa said.

The tax increases would expire in six years, when the economy should improve, and Say and Hanabusa said they may discuss repealing the tax increases sooner if the economy rebounds faster than expected.

$800 MILLION IN CUTS

Earlier yesterday, the state House and Senate gave final approval to a two-year state budget that contains $800 million in general-fund spending cuts and the elimination of 200 mostly vacant state jobs. The budget would not have balanced without $942 million in federal stimulus money approved by President Obama and Congress and the roughly $250 million in tax increases.

Over the past year, because of the recession, state revenues have fallen by more than $2 billion, forcing both Lingle and lawmakers to make substantial spending cuts.

State Rep. Isaac Choy, D-24th (Manoa), an accountant and former chairman of the state Tax Review Commission, praised lawmakers for their budget work in a difficult economic climate. "In my career I've done a lot of business plans and a lot of budgets. Before I came here, I was in the peanut gallery and I could criticize all day long," Choy said. "We can stand here and we can criticize the budget all we want, but it's a plan and a good financial plan."

Lingle insists that lawmakers could have balanced the budget without the tax increases, and has pledged to try to avoid layoffs of state workers in collective bargaining talks. Instead, the state and union leaders are discussing furloughs and adjustments to worker healthcare benefits.

VETO SUPPORTERS

People holding signs, chanting anti-tax slogans and waving American flags turned out for the governor's ceremony. An individual dressed in a pink pig suit walked around while the governor spoke, wearing a white T-shirt with the slogan "Our Big Fat Government" emblazoned on its chest. Hotel workers appeared in uniform holding signs and shouting support for the veto of the hotel-room tax.

Lingle was introduced by Lt. Gov. James "Duke" Aiona, who claimed Democrats failed to provide any reasonable explanation why they decided to raise taxes.

The Senate, meanwhile, gave final approval yesterday to a bill that restricts the high-technology tax credits known as Act 221. The bill, passed by the House on Tuesday, limits investors to using the credits to write off 80 percent of their tax liability instead of 100 percent. It also limits investors to a one-to-one return on their investment rather than a multiple return. Some investors have been trading the credits for equity with Mainland investors looking to help finance technology projects.

SALARIES REDUCED

The Senate passed a bill, approved by the House Tuesday, to impose a 5 percent pay cut and salary freeze through fiscal year 2011 on lawmakers, the governor, the lieutenant governor, department directors and judges.

Lawmakers also finalized a $1 income tax credit to satisfy a state constitutional requirement for a tax refund after two consecutive years of significant budget surplus — one of the most ironic bills of the session, given the budget deficit.

Lawmakers approved a bill that allows public hospitals in the Hawai'i Health Systems Corp. to convert to private status and reduce services to become more competitive. The bill also encourages greater regional autonomy within the system and, separately, lawmakers directed more state and federal money toward the struggling public hospitals.

Lawmakers passed a $1 increase in the so-called "barrel tax" on petroleum products — from 5 cents to $1.05 — to help finance renewable energy and food security programs.

Lawmakers approved a campaign-finance bill that slightly relaxes a limit on Mainland political contributions to state candidates. The bill also refines the law and prohibits contributions from nonbid state and county contractors instead of all state and county contractors.

SUMMARIES OF THE BILLS

Gov. Linda Lingle vetoed bills yesterday that would increase state income taxes on the wealthy, the hotel-room tax, a tobacco product tax and the conveyance tax on the sale of luxury homes. She signed a bill that will increase the tax on cigarettes. State House and Senate leaders will attempt to override the vetoes today. Here is a breakdown of the tax bills:

Income tax (HB 1747 HD1 SD1 CD1): Raises the state income tax from the existing 8.25 percent to up to 11 percent on single taxpayers who make $150,000 or more a year, heads of households who earn $225,000 or more a year, and couples who make $300,000 or more a year.

The tax increase would apply to roughly the top 2.6 percent of state taxpayers. Starting in fiscal year 2012, the bill would also increase the standard deduction and personal exemption, which would provide a tax break for many taxpayers.

Revenue estimate over the two-year budget: $96.6 million.

Revenue estimate over the six-year financial plan: $245.8 million.

Hotel-room tax (SB 1111 HD1 SD1 CD1): Raises the transient accommodations tax by 1 percentage point in July — from 7.25 percent to 8.25 percent — and another 1 percentage point in July 2010 — from 8.25 percent to 9.25 percent.

The tax increase would apply to operators of hotel rooms, apartments, condominiums, beach houses and other places rented to visitors or local guests. The increase would likely be passed on to consumers.

Revenue estimate over the two-year budget: $88.9 million.

Revenue estimate over the six-year financial plan: $367.2 million.

Conveyance tax (HB 1741 HD1 SD1 CD1): Raises the conveyance tax on the sale of properties of $2 million or more and on second-home purchases.

Reduces for three years the distribution of conveyance tax revenues into the rental housing trust fund and the natural area reserve fund.

Revenue estimate over the two-year budget: $8 million.

Revenue estimate over the six-year financial plan: $24 million.

Tobacco tax (HB 895 HD2 SD2 CD1): Raises the state's tax on the wholesale price of tobacco products, such as chewing tobacco or pipe tobacco, from 40 percent to 70 percent starting at the end of September. The state's tax on the wholesale price of cigars would increase from 40 percent to 50 percent, and smaller cigars that resemble cigarettes would be taxed like cigarettes.

The tax increase would likely be passed on to consumers.

Revenue estimate over the two-year budget: $3.2 million.

Revenue estimate over the six-year financial plan: $18.6 million.

Cigarette tax (HB 1175 HD3 SD2 CD1): Raises the state's 10-cent-per-cigarette tax by 2 cents in July, in addition to the 1-cent increase already scheduled, bringing the tax to 13 cents. Previously scheduled 1-cent increases would bring the tax to 14 cents in July 2010 and 15 cents in July 2011.

Revenue estimate over the two-year budget: $46.7 million.

Revenue estimate over the six-year financial plan: $135.7 million.

Total revenue estimate from tax bills over the two-year budget: $250 million.

Total revenue estimate from tax bills over the six-year financial plan: $800 million.

Sources: State House Finance Committee; Advertiser research