KAILUA-KONA — The head of a tax watchdog group and a Big Island legislator offered starkly opposing views to the precise effect the tax bill Congress passed Wednesday will have on Hawaii residents.
“When you look at the broad position as opposed to the narrow ones, it’s overall going to be helpful in that it will allow the middle class to take home more money,” said Tom Yamachika, president of the Tax Foundation of Hawaii. “And hopefully it will stimulate the economy. What kind of effect (it will have) we don’t know until we see in two or three years what’s actually happened.”
State Sen. Josh Green, D-Kona, Ka‘u, agreed with Yamachika that GOP projections of economic growth remain largely speculative, but that’s where the consensus ended.
“This is as bad and cynical and mean-spirited a bill as I’ve ever seen,” Green said. “Whoever says that this is good for Hawaii families should turn in their credentials. They don’t know what they’re talking about.”
Yamachika said the state’s generally high incomes will amount to significant savings, as middle-income people will get rate cuts between 3 and 4 percent, the most pervasive benefit of the bill in his view.
According to census data on the state Department of Business, Economic Development and Tourism website, the median household income in Hawaii in 2016 was $74,511, while the median family income was $86,768. Under the tax overhaul, singles making between $38,700 and $82,500 will see a drop in their individual rate from 25 percent to 22 percent. The same is true for couples making between $77,400 and $165,000.
But Green said rate cuts for average middle-class households in Hawaii become burdens rather than benefits when considering other provisions of the new tax law.
One element of the bill contributing to this, he said, is the $10,000 cap on state and local tax deductions. Until now, Hawaii taxpayers could deduct the entirety of their state, property and general excise taxes on their federal returns.
“It was a direct attack on people in states that have a relatively high state tax,” Green said. “No amount of economic growth, which is entirely theoretical by the way, is going to help when people can’t deduct the tax they’ve already paid.”
Yamachika also touted the legislative increase in standard deductions, up from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married couples who file jointly.
“In today’s world, the standard deduction doesn’t cover much, so anybody who pays state tax itemizes,” he said. “That may not be true in the new (paradigm). Now you have a standard deduction amount that actually means something.”
Green acquiesced that many of Hawaii’s poor will come out “more or less neutral” under the new plan because of the standard deduction increase. But he said many of them might lose other vital services as Congress attempts to offset the roughly $1.5 trillion the bill is expected to add to the deficit by 2027.
“Next year, when they try to cut the deficit, they’re going to come straight for Medicaid, Medicare and Social Security,” Green said.
He added roughly 1 in 4 Hawaii residents rely on Medicaid and projected cuts could threaten the benefits of 100,000 people throughout the state.
The new tax code also will lower the cap on the popular mortgage interest deduction, meaning homeowners will now only be allowed to deduct interest on mortgage debt up to $750,000 rather than $1 million.
A panel of economists said in a presentation to DBEDT in March that projections put roughly one-third of all homes in the state trading at $1 million or more by the early 2020s. According to census data, median housing value in Hawaii was $592,000 in 2016, the highest in the nation.
Yamachika played down the impact of the deduction cap, noting most people buying such expensive homes don’t actually get loans in the seven-figures.
“It’s going to alter what people buy and sell for,” he said. “We would hope it would drive prices down.”
Green took an opposing stance, saying middle-class families will struggle to purchase homes in places such as Hawaii with high property values because of the cap.
The elimination of the casualty loss deduction also is pertinent in Hawaii, considering the number of natural threats to property inherent to the islands and that insurance doesn’t always cover the full amount of loss incurred.
The current law allows for a deduction for personal property losses equivalent to at least 10 percent of a taxpayer’s gross income. Under the new law, no such losses are deductible save for those incurred in an event the president declares a disaster.
Ultimately, Yamachika asserted the tax legislation should be evaluated on a case-by-case basis and assumed a wait-and-see approach tinted with optimism.
“I think because there are so many moving pieces in this bill, it’s really tough to come to a conclusion whether it’s going to help or hurt overall,” he said.
Green was unequivocal in his description of the legislation as fundamentally immoral and detrimental to Hawaii taxpayers.
“This bill was tailor-made for corporations, and the middle class will really suffer,” Green said. “While it may play out almost neutral for some residents, (the tax law) will, over the long haul, be a gun to the head of most of Hawaii’s people.”
Email Max Dible at mdible@westhawaiitoday.com.