Lawmakers revive, enlarge tax rebate plan for Hawaii taxpayers

Hawaii taxpayers may still yet get tax rebates this year, and the amount for many could be $300 instead of the $100 that Gov. David Ige proposed in January.

Two influential state lawmakers who chair the financial committees at the Legislature are proposing to spend $250 million on state tax rebates ranging from $100 to $300 per taxpayer depending on personal income.

The $300 rebate would be for individuals who earn under $100,000, plus $300 for each of their dependents. That means a family of four in that income category would receive $1,200.

For taxpayers earning $100,000 a year or more, the rebate would be $100 and the same per dependent.

Sen. Donovan Dela Cruz, chairman of the Senate Ways and Means Committee, and Rep. Sylvia Luke, chairwoman of the House Finance Committee, announced the plan Wednesday on the Honolulu Star-Advertiser’s “Spotlight Hawaii” livestream program.

Dela Cruz (D, Wahiawa-­Whitmore-Mililani Mauka) described the plan as a “work in progress” that could be carried out via a bill that was introduced and passed by the Senate last year and then advanced by House Finance on Tuesday.

Last month, Dela Cruz indefinitely deferred a different Senate bill that would have delivered the governor’s proposed rebates because Ige administration officials hadn’t offered up a plan to comply with federal coronavirus aid spending restrictions that limit tax cuts.

Now, there appears to be a path to provide even larger tax cuts than Ige proposed without running afoul of the federal limitations.

Luke (D, Punchbowl-­Pauoa-Nuuanu) said there is a need to provide relief to local taxpayers because the cost of gas and other goods has been rising.

“Our focus is really on helping working families,” she said on “Spotlight.” “Donovan and I are very committed to this.”

It’s unclear at the moment, according to Luke, as to whether the planned rebates can be delivered right away or would have to wait until taxpayers file their tax returns next year.

Ige’s proposal, which he unveiled during his State of the State speech in January, was estimated to cost $110 million.

The governor included two bills in his package of proposed legislation to provide $100 to every Hawaii taxpayer and their dependents.

One of these measures, House Bill 2132, was referred to House Finance and another committee but got no hearing. The companion, Senate Bill 3100, was deferred by Dela Cruz over the federal restriction issue that Ige’s administration had yet to address.

“They didn’t provide how we are going to meet the federal regulations,” Dela Cruz said last month.

Under federal regulations, states have to pay back federal coronavirus recovery funds if used directly or indirectly to offset a reduction in net tax revenue resulting from a change in law, regulation or administrative interpretation between March 3, 2021, and the end of a fiscal year in which the funds are spent.

To avoid the repayment requirement, state officials would have to demonstrate how a tax rebate was paid for from a source other than the federal aid, which could include moves to raise revenue, cut spending or using revenue produced from an enlarged economy.

On Wednesday, Dela Cruz said the state is in a position to provide up to $300 million in tax reductions without running afoul of the repayment requirement.

To carry out the new plan, the House Finance Committee amended SB 514 on Tuesday to include a tax rebate with language from the bills proposed by Ige, though with a blank amount.

“We will continue to entertain a possible rebate in light of the high gas prices,” Luke said during Tuesday’s committee meeting.

In written testimony on the bill, the Grassroot Institute of Hawaii suggested that lawmakers top the $100 rebate amount proposed by the governor by a factor of more than 10, given a budget surplus it estimated at around $3 billion.

“The governor hoped to add about $110 million to the economy via a refund of $100 per taxpayer and dependent,” said Joe Kent, the organization’s executive vice president. “However, we suggest that, given the amount of its budget surplus, the state return at least one-third of the windfall, or about $1 billion, to the taxpayers. That would equal approximately $1,361 for each of Hawaii’s 734,673 taxpayers. As we noted, the state can afford to do far more than a mere $100 each for Hawaii taxpayers, who have gone through so much in the past two years.”

Originally, SB 514 was drafted to provide a 2021 tax refund or credit, along with other things that included a deposit into the state’s emergency and budget reserve fund also known as the “rainy day fund.”

Ige in January proposed a $1 billion deposit into the rainy day fund, though lawmakers have balked at that sum.

Dela Cruz and Luke said Wednesday that an unspecified amount of money is still being considered to increase the state’s financial reserve.

“We are still committed to setting aside some funding into the rainy day fund,” Luke said. “It may not be the billion dollars that the governor asked for, but it is still good, prudent policy for us to do that.”