Estate tax bill would be win-win for family businesses and state

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Commerce and Consumer Protection on March 14, 2024.

March 14, 2024  9:30 a.m.
Hawaii State Capitol
Conference Room 229 and Videoconference

To: Senate Committee on Commerce and Consumer Protection
      Sen. Jarrett Keohokalole, Chair
      Sen. Carol Fukunaga, Vice-Chair

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


Aloha Chair Keohokalole, Vice-Chair Fukunaga and Committee Members,

The Grassroot Institute of Hawaii would like to offer its support for HB2653 HD1, which would conform Hawaii’s estate tax law to federal estate tax law and create an estate tax benefit for certain family-owned businesses.

Research has shown that the estate tax lowers business investment and harms job creation.[1] And to put this bill into context, only 12 states even have estate taxes, and among those, Hawaii is tied with Washington state for having the highest estate tax rates — with both topping out at 20% for certain estate values.[2]

Making matters worse, Hawaii’s estate tax threshold is also relatively low — $5.49 million per individual versus $13.61 million at the federal level. And once the threshold is exceeded, Hawaii’s rates kick in at anywhere from 10% to 20%, depending on the value of the estate, as the table below shows.[3]

This bill seeks to give tax relief to certain family-owned businesses by tying Hawaii’s exemption value to the federal exemption value, which is set to decrease to about $7 million beginning in 2026.[4]

This is not a new idea: Until 2018, Hawaii’s exemption had been tied to the federal tax code.

Increasing the value of Hawaii’s “zero bracket” exemption would help local businesses stay afloat in Hawaii’s often unfriendly business environment.

As the bill notes, “The imposition of estate taxes upon the death of the owner of a family business has sometimes resulted in the sale of that business, as that is the only way sufficient cash can be raised to pay those taxes. In other cases, family businesses have sold key assets or operating divisions to raise cash for those taxes.”

As the bill also notes, aligning Hawaii’s estate tax with the federal tax would reduce the administrative burden on the state Department of Taxation, since currently the department must “independently monitor and examine the filings of estate tax returns.”

In other words, adopting this bill would be a win-win for both local businesses and the state government.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii

[1]  Pavel A. Yakovlev and Antony Davies, “How does the estate tax affect the number of firms?” Journal of Entrepreneurship and Public Policy, April 14, 2014; and Donald Bruce and John Deskins, “Can state tax policies be used to promote entrepreneurial activity?” Small Business Economics, Feb. 19, 2010.
[2] Andrey Yushkov, “Does Your State Have an Estate or Inheritance Tax?” Tax Foundation, Oct. 10, 2023.
[3]Hawaii Estate Tax Explained,” Valur Library, accessed Feb. 11, 2024.
[4]Federal Estate and Gift Tax Exemption Will Sunset After 2025: How to Prepare Now,” Cherry Bekaert, June 15, 2023.

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