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Estate tax reform would help family businesses

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Finance on April 3, 2024.
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April 3, 2024  2:15 p.m.
Hawaii State Capitol
Conference Room 308 and Videoconference

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

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

RE: TESTIMONY SUPPORTING SB3289 SD1 — RELATING TO TAXATION

Aloha Chair Yamashita, Vice-Chair Kitagawa and other members of the Committee,

The Grassroot Institute of Hawaii would like to offer its support for SB3289 SD1, which would provide an estate tax exemption for estates transferred to immediate family members.

This measure would support Hawaii residents and family-owned businesses. Right now, an individually held restaurant is subject to the estate tax upon the death of the owner unless transferred to the owner’s spouse.

The bill would expand that exemption so that the estate tax would not be applicable if the restaurant is transferred to an immediate family member such as a parent, child, grandchild or sibling.

Research has shown that the estate tax can lower business investment and harm 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]

Because land values are so high in Hawaii, many businesses fortunate enough to own their own building could easily be close to the $5.49 million threshold by simply existing — regardless of whether they are turning a profit or have large cash reserves.

By providing an estate tax exemption for immediate family members, this measure would reduce the high cost of doing business and living in Hawaii and help ensure that the local businesses can remain in the hands of the families who started them.

Thank you for the opportunity to testify.

Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[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.

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