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Reforms proposed in HB2404 would provide major tax relief

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 HB2404 — RELATING TO INCOME TAX

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

The Grassroot Institute of Hawaii would like to offer its support for HB2404, which would index Hawaii’s individual income tax brackets, personal exemptions and standard deductions to inflation and increase the value of the child and dependent care tax credit.

This bill is a welcome measure that would ensure all Hawaii taxpayers receive some degree of income tax relief.

When inflation is high, as it was in 2021 and 2022, some employers give their employees raises to offset inflation; however, Hawaii’s income tax structure almost guarantees that some of that raise is taxed at a higher rate as individuals move into higher tax brackets.

Hawaii’s high tax rates and compressed brackets don’t help. 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.[1]

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[2]  — and mainly to states without income taxes, such as Washington, Nevada, Texas and Florida.[3] 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.[4]

This bill would ensure that the income tax structure changes as inflation increases, giving everyone a little tax relief each year, to help offset the higher cost of living.

Please pass HB2404 out of committee to give all Hawaii taxpayers a break.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Seth Colby, “Comparing Hawaii’s Income Tax Burden to Other States,” Hawaii Department of Taxation, June 2023. When comparing Hawaii with other states, it must be understood that Hawaii’s education system is funded at the state level, without county property taxes.
[2] Maria Wood, “Where People from Hawaii Are Moving to the Most,” 24/7 Wall Street, Jan. 23, 2022.
[3] Katherine Loughead, “How Do Taxes Affect Interstate Migration?” Tax Foundation, Oct. 11, 2022.
[4] Timothy Vermeer, “The Impact of Individual Income Tax Changes on Economic Growth,” Tax Foundation, June 14, 2022.

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