Together we must face a fiscal deficit of $844 million over the next two years. Every possible solution is on the table for consideration. This includes improving our current tax system so that everyone pays their fair share.
For example, I have no problem with people who choose to move to Hawaii to retire and make positive contributions in our community. But it is not right for wealthy retirees to pay no state taxes on the pension part of their income while others — people who work in Hawaii and retirees with non-pension income — pay their state taxes. People whose retirement income comes from 401(k), IRA or annuities pay state taxes.
This unfair tax benefit for the wealthy is why I put forward a proposal to end preferential treatment for some pension income. I have three main objectives.
Most importantly, my proposal will not affect most people with pensions. I understand that the increasing cost of living in Hawaii makes being retired on a fixed income very difficult. My proposal will create no additional burden on people who really need this tax break.
“The proposal under consideration will not affect individuals with an annual federal adjusted gross income of less than $37,500 for single filers and $75,000 for couples. The state Tax Department estimates that fewer than half of current pensioners will be affected in any way by this. Those who are affected will be only proportionately. The proposal does not affect Social Security benefits.
Second, the proposal — which has been recommended by the state Tax Review Commission — will align Hawaii with most other states and the federal government. It will treat pension income the same as other kinds of retirement income for tax purposes, like the people who pay state taxes on IRAs and 401(k)s mentioned above. But because of a state law created more than 40 years ago, when benefits were low, pensions are exempt.
Third, this proposal ensures that wealthier pensioners who should be paying their share of taxes are contributing. While the state struggles to pay for public schools, encourage new industries and job creation, maintain public infrastructure and provide needed services for seniors and the elderly, we ought not continue a tax break that encourages people to move to Hawaii to retire to escape these responsibilities. This includes the obligation to service the unfunded liability of the pension funds themselves.
This proposal is one of several I put forward to the state Legislature and to the people of Hawaii. I have asked all members of our community — our public employees, businesses, community organizations — to share the burden and do what is right so we can build a better future for our state in the short and long term, including salvaging the pension system itself. Unless everyone contributes their fair share, the few benefiting now will put the entire pension program in jeopardy.
Throughout this legislative session, we will continue to have dialogue and I am open to other ideas. However, we will not entertain ideas that shield the interests of some in order to shift responsibility to others. We are all in the canoe together, and everyone must paddle. We can’t afford for anyone to sit still while others shoulder the burden. We are rebuilding our economy, getting people back to work, restoring pride in our public workforce, and moving in a new direction. We must work together; there is no other choice. If we do, there is nothing that cannot be accomplished.