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Pass HB2780 to help end income tax ‘bracket creep’

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Finance on Feb. 27, 2024.
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Feb 27, 2024, 10 a.m.
Hawaii State Capitol
Conference Room 308 and Videoconference

To: House Committee on Finance
      Rep. Kyle T. Yamashita, Chair
      Rep. Lisa Kitagawa, Vice-Chair

From: Grassroot Institute of Hawaii
           Ted Kefalas, Director of Strategic Campaigns

RE: TESTIMONY SUPPORTING HB2780 — RELATING TO TAXATION

Aloha Chair Yamashita, Vice-Chair Kitagawa and Committee Members,

The Grassroot Institute of Hawaii would like to offer its support for HB2780, which would gradually increase the size of Hawaii’s individual income tax brackets between 2025 and 2031.

Hawaii has 12 income tax brackets — the most of any state in the country.[1] To add to this complexity, the brackets have not been substantially adjusted in many years.[2] But because wages have exponentially increased since then,[3] Hawaii taxpayers have been moved into higher tax brackets.

For context, the federal poverty level for a family of four was $34,500 in 2023,[4] but a Hawaii family making that amount would fall into the fifth tax bracket with a marginal rate of 6.8%.

Partly because of this “bracket creep,” Hawaii taxpayers tend to pay much more than taxpayers in other states. A review from the state Department of Taxation found that a Hawaii household making the median income of $88,005 pays $5,086 in income taxes each year.

This makes Hawaii the second highest-taxed state in terms of what a household earning the median income must pay in income taxes — behind only Oregon, which has no sales tax.[5]

Further, Hawaii’s high tax burden contributes to the state’s cost of living, which is a key factor in Hawaii’s population decline. Tens of thousands of Hawaii residents have moved to the mainland over the past six years[6] — and mainly to states without income taxes, such as Washington, Nevada, Texas and Florida.[7] Their departure from the islands is not only emotionally distressing, but economically depressing as well.

Research shows that lowering income taxes — as this bill would do, though indirectly — has a number of benefits. The national Tax Foundation compiled a list of studies finding that income taxes tend to lower gross domestic product, decrease unemployment and increase wages.[8]

Please pass this bill to end almost 50 years of bracket creep.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Andrey Yushkov, “State Individual Income Tax Rates and Brackets, 2024,” Tax Foundation, Feb. 20, 2024.
[2] Tom Yamachika, “We’ve Been Bracket Creeped!” Tax Foundation of Hawaii, June 29, 2014; personal communication with Tom Yamachika, Feb. 25, 2024.
[3] Noelle Fujii-Oride, “Tracking Hawai‘i Paychecks Versus Living Costs Since 1969,” Nov. 16, 2022.
[4]Annual Update of the HHS Poverty Guidelines,” Federal Register, Jan. 19, 2023.
[5] Seth Colby, “Comparing Hawaii’s Income Tax Burden to Other States,” Hawaii Department of Taxation, June 2023. It is worth pointing out that Hawaii’s education system is funded at the state level, without county property taxes. This comparison must be understood in that context.
[6] Maria Wood, “Where People from Hawaii Are Moving to the Most,” 24/7 Wall Street, Jan. 23, 2022.
[7] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[8] Timothy Vermeer, “The Impact of Individual Income Tax Changes on Economic Growth,” Tax Foundation, June 14, 2022.

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