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Cannot reasonably assess tax bill after specific amounts removed

March 28, 2024, 9:50 a.m.
Hawaii State Capitol
Conference Room 211 and Videoconference

To: Senate Committee on Ways and Means
      Sen. Donovan M. Dela Cruz, Chair
      Sen. Sharon Y. Moriwaki, Vice-Chair

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

Comments on HB2404 HD1 — RELATING TO INCOME TAX

Aloha Chair Dela Cruz, Vice-Chair Moriwaki and other members of the Committee,

The Grassroot Institute of Hawaii would like to offer its comments on HB2404 HD1, which would amend the state income tax brackets in an as-yet undefined way.

Due to the use of blank amounts and thresholds in the current version of this bill, it is difficult to comment on its potential impact, whereas the previous version of HB2404 stated clearly how it would have indexed to inflation Hawaii’s individual income tax brackets, personal exemptions and standard deductions.

Lowering income taxes across the board would be the best approach to promoting broad economic growth in the state. However, even if the Committee is not contemplating a comprehensive income tax cut, we urge you to reinstate the language that indexed tax brackets, personal exemptions and standard deductions to inflation.  It is a comparatively small reform 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 guaranteed that some of those raises would be taxed at higher rates 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 — which this bill has the potential to accomplish — 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]

Reinstating the deleted provision 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.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
_____________

[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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