A state bill that would increase taxes for high-income earners might be stalled, but it still could negatively impact the state’s doctor shortage.
Senate Bill 56 was introduced this legislative session in an effort to generate additional revenue for the state in the wake of a $2 billion budget shortfall caused by the COVID-19 pandemic. In order to avoid imposing furloughs or layoffs for state employees, the bill proposed a series of increases to high earners’ income tax, the capital gains tax, the corporate income tax and conveyance taxes.
Under the measure, people making $200,000 or more a year would see their income tax rate increase from 11% to 16% beginning this year. If approved, it would be the highest income tax rate in the nation.
While the bill was largely popular among testifiers at its single Senate committee hearing earlier this month — which it passed unanimously — some were concerned about the legislation’s potential to dissuade doctors to move to the state, exacerbating an already critical doctor shortage.
Hilo radiologist Scott Grosskreutz, who helped form a Hawaii Physician Shortage Crisis Task Force to work with the state Legislature on the issue, said Hawaii County has an estimated 53% fewer physicians than similar-sized communities on the mainland.
Furthermore, more than one-third of the doctors the county does have are 65 years old or older, meaning many will retire soon, leaving the county in even worse straits.
A bill that would raise taxes on a doctor’s salary would simply disincentivize more doctors from traveling here and could force some physicians to leave, Grosskreutz said.
“It seems like there’s not a good understanding (in the Legislature) of how physicians are trained,” Grosskreutz said. “They forgo 10 years of employment opportunities during med school and residencies and fellowships … so they enter the job market in their 30s, saddled with $250,000 in student debt, and then they have to pay to move to Hawaii and set up.”
Lisa Rantz, president of the Hawaii Rural Health Association and executive director of the Hilo Medical Center Foundation, said that because private practice doctors are not exempt from the state’s general excise tax, a doctor in Hawaii can expect to make comparable income to a doctor in rural Ohio, while also dealing with a much higher cost of living.
“There was one doctor who told me, if this passes, they would just have to leave the state,” Rantz said.
While the majority of testifiers at the Senate Ways and Means Committee earlier this month were supportive of the bill — with most pointing to the bill as a way to support one critical state program or another — others opposed it, although not because it could worsen the doctor shortage.
Most opposition was against the provision of the bill to increase the conveyance tax for the sale of properties valued at $1 million or higher. But others, like the Hawaii Food Industry Association, opposed the bill because it could cripple the recovery of local businesses after the pandemic.
Regardless of the bill’s reception, Rantz and Grosskreutz believe SB56 is doomed: While the bill only had to pass through a single committee in the Senate, it has since been referred to four separate committees in the House.
The bill has to move through at least three of those committees by the end of next week, but no hearing has been scheduled for any of them.
But even if the bill is dead, it may have already done some damage, Grosskreutz said.
The measure had generated news coverage in national publications after its introduction, generating headlines — “Hawaii Senate Approves Nation’s Highest Income Tax Rate,” read the headline of a U.S. News and World Report article last week — that drew the attention of physicians across the nation.
“They saw that it was something the state was trying to do,” Grosskreutz said. “And even if this bill is dead, like policies can always be reintroduced in other bills later on down the line.”
Email Michael Brestovansky at email@example.com.