Estate tax reform would help local family businesses

The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Ways and Means on April 5, 2024.

April 5, 2024  10:20 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


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

The Grassroot Institute of Hawaii would like to offer its support for HB2653 HD1 SD1, 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 estate taxes lower business investment and harms job creation.[1] And to put this bill into context, only 12 states even have estate taxes. 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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