The gap in wealth and income between the richest and poorest is growing ever wider in Hawaii and across the United States. Polls consistently show that people support increasing taxes on the rich and on corporations. Yet at the national level, top tax rates on the highest earners are near historic lows.

During the 1950s, the top marginal income tax rate was as much as 92%. As recently as 1980, it was 70%. Trump’s tax cuts in 2017 reduced the top rate on the wealthiest to just 37%.

State Senate Bill 56 proposes to temporarily increase the top marginal income tax rate on Hawaii’s wealthiest taxpayers from 11% to 16%. The changes proposed will not affect income tax rates for other taxpayers.

The proposal seems to have a lot of people riled up, but this could be due to misinformation about how marginal tax rates work: a taxpayer pays a base rate plus an additional amount on whatever income they earn above the base. The highest rate doesn’t apply to the full income—only to the excess.

The proposed change for taxpayers at the highest level would mean that a single taxpayer with a taxable income of $250,000 would pay the same base rate they do now on their first $200,000. The marginal rate of 16% applies only to the additional $50,000. As a result, this particular taxpayer’s overall actual tax rate would be 10% under the proposed bill rather than 9% using the current rate.

A couple of other things that the proposed bill would do to increase the fairness of our tax system:

>> The bill would raise the tax rate on long-term capital gains, which are the profits from sales of stocks and other assets. This “passive” income is currently taxed at a lower rate than most of us pay on our regular earnings. It also very disproportionately benefits the rich. In Hawaii in 2018, 72% of capital gains income was reported by the 7% of taxpayers who earned $400,000 or more. The proposed legislation would increase the tax rate to 11% from just 7.25% now.

>> The bill would also increase the tax rate on profitable taxable corporations to 9.6% from current rates of 4.4%-6.4%. Note two important qualifiers in that statement. First the corporation would have to be profitable. As reported by the state Department of Taxation for 2018, only 23.5% of taxable corporations reported a net profit. Second, only 8% of Hawaii businesses are taxable corporations.

>> The final tax increase proposed in the bill would raise the conveyance tax, but only on properties that are sold for $4 million or more. Hawaii’s conveyance tax is assessed on real estate when it’s sold. Between January 2019 and September 2020, more than $2 billion in residential properties were sold in Hawaii at a price of $4 million or more. Nonresidents purchased 58% of the houses that sold for $4 million-$6 million, and 68% of houses priced at more than $6 million. Increasing the conveyance tax, as proposed, is not the only strategy that should be deployed against investors that raise the cost of housing for Hawaii, but it will help.

Senate Bill 56 accomplishes what most of us would like our tax system to do: It assesses a greater contribution to the public good from those who can afford it.

Beth Giesting is director of the Hawaii Budget & Policy Center; her background is in health-care delivery and policy, especially for underserved and low-income communities.