fbpx

Grassroot writers hail passage by Legislature of historic tax cut

The following “Island Voices” commentary was first published on May 20, 2024, in the Honolulu Star-Advertiser under the headline “Proposed income tax cuts a net positive for Hawaii’s economy.”
__________

By Mark Coleman and Jonathan Helton

Hawaii lawmakers approved more than 200 bills during the 2024 legislative session, but the one people are likely to be talking about for years is House Bill 2404, which aims to lower the state income tax burden for average families by almost 70% by 2031 and save taxpayers roughly $5 billion during that period.

The implications of this bill for Hawaii’s economy and social fabric are enormous. The general sense is that the proposed cuts will help lower Hawaii’s cost of living, stem or reverse the continuing exodus of Hawaii residents and spur economic growth.

Not to count our chickens before they hatch, but the chances of the bill being signed into law are excellent, since it is part of Gov. Josh Green’s Green Affordability Plan, which he introduced to the state Legislature in 2023.

Green’s plan also featured tax credits aimed at lower- income residents, which the Legislature authorized last year.

This year, lawmakers not only revisited the governor’s plan for more broadly based income tax cuts — they expanded on his proposal and even approved the bill unanimously.

The historic cuts will occur partly through increases in the standard deduction — from $4,400 in the first year to $24,000 by 2031.

For taxpayers who opt for the standard deduction, this effectively means they will pay zero percent tax rate on $24,000 of their income.

The plan also will expand the size of Hawaii’s tax brackets, without changing the rates. This means that all taxpayers will see more of their income taxed at the lower rates that apply to the first few brackets.

Such changes in Hawaii’s income tax program are long overdue. The state’s lowest income tax brackets have not been changed since 2006; and as wages and inflation have increased over time, most people have moved into higher tax brackets, a process known as “bracket creep.”

Additionally, according to research from the state Department of Taxation, “higher rates apply early on the income spectrum and increase rapidly,” meaning that most taxpayers, even lower- income residents, are taxed at higher rates than in other states.

Of course, some states don’t have any income taxes at all, such as Nevada and Texas, which are two of the states most popular with people who have been moving away from Hawaii.

But now, unprecedented income tax reform is on the horizon, and it appears Hawaii’s future will be a different story.

A family making the median income of $91,010 could see their taxes go down by more than $1,500. By 2031, when the adjustments have fully gone into effect, that same family will pay just over $1,600 a year — a 69% tax cut.

No wonder lawmakers have called this cut “historic.” Not only has this happened in a “blue” state where seldom is heard a discouraging word about tax hikes — it also means that all Hawaii taxpayers will benefit from this reform, with the lower-income earners seeing a much higher percent- age savings than higher-income earners.

Hawaii lawmakers cannot directly control food, housing or utility costs, but they can control our tax burden.

And their decision to follow Gov. Green’s lead by cutting the state income tax in such a grand and sweeping way is certainly something to celebrate.
___________

Mark Coleman is communications director and Jonathan Helton is a policy researcher at the Grassroot Institute of Hawaii.

Subscribe to our free newsletter!

Get updates on what we're doing to make Hawaii affordable for everyone.
Subscribe
Want more?

Get content like this delivered straight to your inbox. We’ll also send updates on what we’re doing to make Hawaii affordable for everyone.

Recent Posts