A wide-ranging bill offering tax credits and lowering financial burdens on Hawaii residents has passed the state House Education and Economic Development committees.
Gov. Josh Green’s so-called Green Affordability Plan offers income assistance to low- and middle-income households, expands the child and dependent care tax credit, and shifts tax income brackets to provide additional relief.
The plan was introduced as House Bill 1049 and Senate Bill 1347.
“This would amount to the most substantial increase in benefits for our working families since I’ve been here,” said Big Island Rep. Chris Todd, a Democrat, who voted in favor of the House bill. “There may be some specific measures where there may be some disagreement, but I think on the whole, this is something that will have very broad support.”
HB 1049 bill provides an alternative to creating general excise tax exemptions for food and medicine, because roughly 30% of the GET is paid by nonresidents, including 21% by tourists and 9% by nonresident military families.
“The tax relief being proposed by the Green administration is much larger than what a simple GET exemption on food and medicine would provide,” Todd said. “By structuring tax relief this way, it will target residents specifically, and local taxpayers.”
The way the bill currently is written, every income level would pay less in state income tax, but those changes could result in “tax cliffs,” where an increase in income causes a big jump in taxes.
“We don’t want to create incentives for people to declare or earn less money,” Todd said. “If you’re making $80,000 a year, we don’t want you to be worse off than if you were making $79,000.”
The Department of Taxation said it is looking into potential tax cliffs and will assist lawmakers in making any adjustments.
“The department understands that portions of the bill contain tax cliffs due to the income steps created to determine eligibility for the tax credits,” said Gary Suganuma, director of taxation, in written testimony. “These tax cliffs may be addressed through a gradual phaseout mechanism, which the department can work with the committee in creating.”
Big Island Rep. Jeanne Kapela, a Democrat, voted to pass the bill but does not view it as a panacea.
“I believe that there are other proposals we should consider as well, including the creation of a state child tax credit,” she said. “I sponsored (House Bill) 233 this year to provide tax relief to families with children. That bill would establish a state child tax credit for Hawaii at $1,000 for children aged 0-5, and at $500 for those aged 6-17, for those earning an adjusted gross income of $60,000 or less.”
According to the House bill, Green’s plan would cost roughly $312.7 million in net revenue loss from the state’s general fund in 2024, and $416.5 million in 2029.
“There is a little bit of caution that should be exercised,” Todd said. “We’re at a point where there’s a sizable surplus, but we don’t want to take that surplus for granted and really cut a significant chunk of revenue.”
The bill also would provide qualifying teachers with a $500 annual tax credit to cover out-of-pocket school supply expenses, which the governor’s office said could help with teacher retention rates and recruitment.
ALICE households — comprised of people who are asset-limited, income-constrained and employed — also would be helped by the bill. These are households that are above the federal poverty level but below the basic cost of living in Hawaii.
“These are the individuals that are living paycheck-to-paycheck,” said Green during a livestream interview on Jan. 30, adding “every single dollar for people who receive these tax breaks is going to go right back into small businesses, people are going to be buying food, helping with tuition, and perhaps can even afford a down payment on a home. This is the way to go.”
ALICE family incomes range from $41,000 to $110,000 annually depending on the number of children. For Hawaii County, 51% of households were living at or below the ALICE threshold, according to a 2022 report from Aloha United Way.
In addition, the bill would: double the personal exemption amount to $2,288; increase the standard deduction amount to $5,000 for single filers and $10,000 for joint filers; increase the amount of qualified expenses for the child and dependent care tax credit to 50% for income up to $150,000; and double food/excise tax credit amounts and income threshold for households to $40,000 for single filers and $60,000 for joint filers.
“Even if this may have an upfront cost of $300 million a year, give-or-take, I think a lot of those costs can be mitigated over time by the savings we have in other areas.” Todd said. “I think a lot of social ills are definitely tied to an inability to provide a stable home with food on the table.”
Pending approval, the bill would apply to taxable years starting after Dec. 31, 2022.
Email Grant Phillips at gphillips@hawaiitribune-herald.com.