Future of Hawaii State Income Tax Bill Remains Uncertain
In a 24-1 vote, the Hawaii Senate passed a bill to levy a 16% income tax on the state’s wealthiest earners on March 9.
In what would be the highest state income tax, residents earning more than $200,000 a year, or $400,000 for joint filers, would be targeted. If the bill were to pass the house, it would significantly increase the capital gains tax from 7.25% to 11%.
The bill also includes a rise in capital gains tax, corporate tax, and taxes on high-level real estate sales.
The tax increase was introduced with the intention of providing financial relief from COVID-19 for the state while creating a more fair tax system based on income.
“Tax policy must ensure that the burden of funding our society — of bringing in the revenues we need to give Hawaii’s residents the best and brightest future possible — is spread fairly,” said Beth Giesting, director of the Hawaii Budget and Policy Center.
However, opposing lawmakers, such Rep. Isaac Choy, raised concerns about wealthy residents moving elsewhere to avoid the high taxes.
“They’re the people with money, so we’re going to end up with people of lesser means staying, and the guys with means moving,” said Choy.
This could be detrimental to the state as Hawaii would see a decrease in revenue if wealthier residents moved, causing a potential reduction in population and fewer upper-class residents.
COVID-19 has also contributed to a struggling economy in Hawaii; with a massive decrease in tourism and travel due to the pandemic, the state’s tourism industry has taken a heavy blow.
Sen. Stanley Chang (D-Oahu), who introduced the bill, said Hawaii could use the money raised from higher taxes to combat financial difficulties caused by the pandemic.
“With a budget shortfall of over $2 billion, we need to look at various ways to generate much-needed revenue for our state,” said Chang.
Like the rest of the United States, Hawaii has experienced high levels of unemployment during the pandemic. Last month, Hawaii had the highest unemployment rate in the nation at 9.2%. In addition to the proposed bill, several federal COVID-19 relief packages have aided Hawaii. In December, Congress passed the American Rescue Plan Act, which included a $1.6 billion cash bailout of the state’s government. On March 10, President Biden signed a $1.9 trillion COVID-19 relief package with an estimated $1.6 billion of funding for Hawaii, including recent stimulus checks.
“This new package will deliver immediate help to people who have lost their jobs or can’t make their rent,” said Sen. Brian Schatz (D-HI). “It provides funding for schools and health care and will give our state more resources to get people vaccinated.”
Hawaii’s House Democratic Majority Leader Della Au Belatti believes the two packages signal failure for Hawaii’s bill.
“There’s opposition mounting in the community, there is the changing landscape because of the American Rescue Plan, and because we want to focus on other things,” said Belatti.
While lawmakers may have been more inclined to support the bill before the two federal relief packages, the bill likely would not have passed in Hawaii’s House of Representatives initially since House Speaker Scott Saiki gave the bill a quadruple referral.
Under a quadruple referral, a measure is assigned to four house committees. Each must hold a hearing and vote on the bill. At least three of the four committees must vote in favor of the measure within two weeks for it to move forward.
Lawmakers do not expect the bill to pass with the difficulties presented by a quadruple referral and the recent COVID-19 relief packages.
Still, the bill will continue forward to Hawaii’s house to determine the measure’s future. If the bill is not passed, the state income tax will remain at 11%.