Tax Hikes Still on the Table

by Tom Yamachika, President, Tax Foundation Hawaii

Our Legislature is now in full swing.  Politicians are busily preparing and debating bills that would affect our future.  One thing different this year, or that is supposed to be different this year, is that because we have just had a U.S. census and the representative and senatorial districts have been reapportioned, each of the elected inhabitants in the big square building on Beretania Street will face the voters this November.

But you wouldn’t think so by looking at some of the measures being proposed.

Last year, when our economy was in the toilet, legislators put forward an omnibus tax increase bill, Senate Bill 56.  I called it the “Enola Gay” bill.  It proposed hefty increases in individual income tax, raising the top bracket from 11% to 13% and hoisting the capital gains maximum rate from 7.25% to 11%.  Corporate tax rates were raised from three brackets with a top rate of 6.4% to one bracket with a rate of 9.6%.  The bill attracted national attention for the magnitude of hikes being considered, as the bill would give us the second highest marginal tax rate in the nation but that highest rate would kick in far earlier than it would in any other state.  When the bill crossed over to the House, many top lawmakers including the Speaker of the House panned it.  The Speaker gave the bill a rare quadruple referral, and not a single House committee touched it.

This year, Senate Bill 2242, “Relating to Taxation,” proposes the exact same individual and corporate income tax rate hikes.  The preamble in the bill recites that state government needs to “increase revenue for essential public services and uplift Hawaii's most vulnerable workers.”  The bill also seeks to end state income taxation of unemployment compensation benefits. 

Maybe the Senate doesn’t care about how this bill is going to be reacted to nationally, or if it is going to meet the same fate in the House as last year’s Senate Bill 56.  The bill is a single referral bill, which means it only needs to be considered by one committee, and it is scheduled to be heard by the Senate Ways and Means Committee on February 2nd.  If the bill passes, it goes to the House.  If it fails there, there is always the possibility that a friendly Senate committee could create a Frankenbill with its contents, like how House Bill 58 was operated on last year.

In the meantime, the House is also attracting national attention.  House Bill 1815 seeks to create an “Online Sports Wagering Corporation” that would regulate and administer sports betting in the State over the Internet.  That might not be so remarkable, but the bill also proposes a sports wagering tax on all winnings paid out to any person by a sports wagering provider.  The tax rate is 55% of winnings.  No, there is no missing decimal point.  According to multiple national specialty news networks, the 55% rate would put us ahead of New York’s and Hawaii’s 51% rate to make Hawaii wagering the most heavily taxed in the country.  “Hawaii Five-Five,” the networks call it.  Hey, we don’t fool around here in Hawaii.

So far, House Bill 1815 has not been scheduled for a hearing in the House.  The bill is considered a long shot even by the betting industry networks.  The Governor, after all, was given a bill by his Department of Hawaiian Home Lands seeking to establish a casino in Kapolei last year.  The Governor did not include the bill in his legislative package.  Other friendly legislators introduced the bill in both houses instead, and the bill was killed by both House and Senate committees.

Hold on to your wallet, folks, because our Legislature is in session!