A bill to shift some of the state tax burden from Hawaii’s poorest residents to its wealthiest residents by increasing income tax rates on the state’s top earners has won near-unanimous approval in the state Senate, and it will now be considered by the House.
Senate Bill 2454 would reduce or eliminate state income taxes for people with the lowest taxable incomes, providing tax cuts to families that make up about 10 percent of Hawaii residents, according to Senate Ways and Mean Chairwoman Jill Tokuda.
Nearly 65,000 tax filers would see some degree of tax relief from the bill, according to tax data provided by Tokuda. On the other side of the ledger, nearly 6,500 tax filers would see their state income tax rates go up.
The measure would effectively eliminate state income taxes for low-income Hawaii residents who file joint returns with earnings of less than $6,600 a year, and for head-of-household filers who earn less than $4,800 per year.
The tax relief for low-income families would cost the state $49.7 million in lost revenue. To offset that loss in tax collections, the measure would raise income taxes on higher-income families to bring in an extra
$48 million a year, meaning the bill would cause a net loss for the state of a bit less than $2 million a year.
The measure would increase income tax rates on single tax filers who make more than $150,000; on joint filers who make more than $300,000; and on head-of-household filers who make more than $225,000.
Tokuda (D, Kailua-Kaneohe) said the bill would make the state income tax system more progressive and provide relief to the taxpayers who deserve it, including the working poor and Hawaii’s most vulnerable residents.
“I think this was a way that we could really do something to try to help those in our community that are really struggling to make it by, or barely are even making it by,” she said.
“This is the way you do it; these are senior citizens, these are families,” she said. “This is the way that we would best be able to provide that kind of relief, and we’ve been looking at this for quite some time now.”
State lawmakers imposed essentially identical tax rates on wealthier filers in 2009 to raise money during the budget crisis caused by the Great Recession, but those higher income tax rates for upper-income families expired Dec. 31. Tokuda’s bill would restore the higher rates from the 2009 law, while adding the new wrinkle of income tax cuts for the poor.
There has been no public hearing yet on Tokuda’s proposal. There was a public hearing held Feb. 11 on an earlier version of SB 2454, but Tokuda then made dramatic changes to the bill and announced those changes at a decision-making session of her committee without holding a public hearing on the new version.
That means the first public vetting of the details of the proposal will be at the House Finance Committee, where the measure has been referred.
House Finance Committee Chairwoman Sylvia Luke (D, Punchbowl-Pauoa-Nuuanu) said the House has considered similar proposals in the past, and “that’s always an option, to at least equalize the taxes that people pay.”
“We’re always looking at ways — whether it’s through income tax relief or credits or other type of relief for the working class or the lower-income class — and this idea is something that I think many people favor, so we are going to take a close look at it,” Luke said. “We’ll gauge when the time comes if there’s enough support or not.”
Tom Yamachika, president of the Tax Foundation of Hawaii, said he has no quarrel with the basic idea of reducing income tax rates for the state’s poorest residents, but added that “this is basically a Robin Hood bill — steal from the rich, give to the poor.”
Yamachika said Tokuda is right to be concerned that the existing state tax system is regressive, meaning that the people who can least afford it are forced to pay a larger proportionate share of their incomes under the existing code. However, Yamachika contends it is the state’s excise tax on virtually all wholesale and retail transactions in Hawaii that makes the system so regressive.
“The biggest problem is that we are very, very dependent upon the (excise) tax, and (the excise) tax is regressive, we know that it is,” he said. However, he said the measure will help “a little bit” to make the state tax system less regressive. Yamachika said his review has also revealed what appear to be some technical flaws in the bill.
Victor Geminiani, co-executive director of the Hawaii Appleseed Center for Law and Economic Justice, said his preliminary analysis of the bill is it would eliminate income taxes for the state’s poorest residents while providing modest tax relief of about $125 to low- and middle-income taxpayers.
Geminiani said it would make more sense to direct the state’s limited resources at the people who need it most through strategies such as a renters’ tax credit that targets the lowest-income residents. That would help the families that are being forced out onto the street, he said.
The House has given preliminary approval to a bill to increase the state renters’ tax credit, and that measure is pending in the Senate.
“Our position is, use something that impacts the population that is really hurting, and that’s the low-income renters’ credit,” Geminiani said. “Our preliminary analysis is (the bill) spreads a lot of money over a very large population, and doesn’t impact on any of them in a significant way.”
