The Home Stretch at the Legislature

by Tom Yamachika, President, Tax Foundation Hawaii

Those of you watching the Legislature probably know that we are now in the home stretch.  Both the House and the Senate have had a chance to consider bills, and this is the stage of the legislative session where differences get worked out between House and Senate versions of bills.  It also has little public involvement.  No more testimony is allowed, and the meetings that conference committees have are held either to stall for more time or simply announce the results.  Here are three of the more consequential bills that are still alive.

HB 2404, a “Green Affordability Plan” bill, seeks some reform for our income tax brackets, many of which haven’t been touched since the 1960’s.  The current version, the Senate draft, bumps up the standard deduction, personal exemption amounts, and all of the tax brackets.  It also contains language automatically adjusting those brackets for cost-of-living increases, just as the federal tax code does.  The latest House version of the bill contains no cost-of-living adjustments and replaces all of the current income tax brackets with blanks.  The House version also amends the current household and dependent care services tax credit to—no surprise here—a formula with blank amounts in key places, and it also contains language saying that if the taxpayer’s credit claim is disallowed, the taxpayer is barred from claiming the credit again for two years (ten years if the disallowance was due to fraud).  The Senate version leaves the credit alone.

SB 1035, a bill from last year that was pulled from the dumpster when this year’s versions died, exempts health care professionals from the general excise tax when Medicare, Medicaid, or TRICARE is paying for the care.  This year’s bill, HB 1675, would have exempted health care professionals from the GET when acting in the capacity of a primary care provider.  Most of the testifiers, including some state agencies, came out in favor of the bill because they believe the tax contributes to the acute physician shortage that we are facing.  Also, as the Foundation testified, the current system has some unfairness because health care delivered by the state’s major hospitals is exempt from the tax while smaller clinics and sole practitioners, which are the lifelines for those in rural areas and some Neighbor Islands, get hit with GET at the full rate.  Some of our prior coverage on this issue can be found here.

Then, there is HB 2653, relating to the estate tax.  This bill was being pushed by a coalition of family-owned businesses, who argued that the Hawaii estate tax, which kicks in at a much smaller dollar amount in Hawaii than the federal estate tax, could have the effect of breaking up successful family-owned businesses, closing them, or causing them to be sold to persons outside of Hawaii.  The current version of the bill would create a deduction for “qualified family-owned business interests” that are inherited.  It would also double the “applicable exclusion amount” so it is the same as under the federal tax code.  This bill is a bit more controversial; some organizations and individuals have strongly objected to it, calling it tax relief for the wealthiest of the wealthy at a time when we have many unmet revenue needs, such as Maui wildfire relief.  Our prior coverage on this bill can be found here.

At the end of this month, the Legislature wraps up and we see what gets sent to Gov. Green’s desk for signature or veto.