‘If you are paying into the income tax, you are going to feel this cut’

from Grassroot Institute of Hawaii, June 13, 2024

Legislators often talk about having a historic year when in fact they didn’t really do much of anything — but Hawaii’s legislative session this year truly was historic, according to Ted Kefalas, Grassroot Institute of Hawaii’s director of strategic campaigns.

Kefalas was referring mainly to the Legislature’s unanimous approval of HB2024, a wide-reaching bill that will cut the state’s income tax burden, and its approval of two important housing bills, all of which have been signed by Gov. Josh Green.

“If you are paying into the income tax,” Kefalas told host Johnny Miro of the H. Hawaii Media radio network on Sunday, “you are going to feel this cut. And the beauty of this is that they really didn’t increase taxes in other areas to pay for it.”

Kefalas explained that a household making the median income in Hawaii of around $91,000 that currently owes about $5,300 in income taxes will incrementally see that amount owed go down to $1,600 by 2031.

“A lot of this was just excess revenue that the government was pulling in, and … they decided to cut taxes for folks,” he said.

Kefalas another tax bill signed into law that will reduce Hawaii’s cost of living was SB1035, which will exempt private practice doctors and dentists from having to pay its general excise tax on care covered by Medicaid, Medicare and TRICARE starting in 2026.

The housing bills were HB2090 and SB3202, dubbed the “adaptive re-use” and “accessory dwelling unit” bills, respectively.

“One of the things that makes Hawaii so beautiful is the vast amount of land we set aside for conservation and agriculture, so we want to try to promote building on land that already has development on it,” Kefalas said of the two pro-housing bills.

Miro pointed out that another way to reduce Hawaii’s cost of living is to reform the federal Jones Act, which because it requires ships moving cargo between U.S. ports be U.S. flagged and built, and mostly owned and crewed by U.S. citizens has been estimated to cost Hawaii residents more than $1 billion per year.

On that note, Kefalas said it shouldn’t take a hurricane or other emergency for the government to waive the Jones Act, because “if it’s clear that it’s a bad idea in emergencies, then it’s clear that it’s a bad idea during the good times as well.”

TRANSCRIPT

6-9-24 Ted Kefalas with host Johnny Miro on the H. Hawaii Media radio network

Johnny Miro: All right, good Sunday morning. I’m Johnny Miro. 

It’s time once again for our public access programming here on our five Oahu radio stations and five Kauai radio stations, available via your smart device if you’re away from the terrestrial radio, at hawaii-stream.fm and the app at Live 365. 

Joining me once again, a guest from the Grassroot Institute of Hawaii — Grassroot Institute of Hawaii — a great think tank, I guess you could call it, nonprofit. 

They’ve been doing some great work and bringing forth some important studies and papers, and they’ve been able to bring forth some great ideas and push for making life a little bit easier as far as the cost of living here, definitely.

So it’s that time of year again as the 2024 legislative session has been wrapped up for about a month now, and Gov. Josh Green has begun by signing some of the bills that passed, and one of the big ones is tax relief. 

Ted Kefalas, director of strategic campaigns for the Grassroot Institute of Hawaii, joins me this morning to discuss this and other things as far as the legislative session that just wrapped up recently for 2024. Good morning, Ted.

Ted Kefalas: Hey, good morning, Johnny. Always a pleasure when we get to talk about these important issues.

Miro: And this is one of the most important: the cost of living. The cost of living that’s making people move away in droves. And this just might — but I guess it’s going to be a kind of a year-by-year effect — it just might help things and turn things around. We’ll see.

Now Ted, earlier this week the governor, as I just mentioned, Gov. Green, signed the largest tax cut in state history. So let’s start right there. What exactly will that bill do?

Kefalas: Yeah, well, Johnny, if you remember a couple of years ago during the election, Gov. Josh Green proposed what he called the Green Affordability Plan. Last session, lawmakers passed some smaller parts of that plan, but this year they took a much larger step to help local families.

HB2404 essentially approved tax cuts amounting to around $5 billion over the next six years. And that’s through a higher earned-income-tax credit, increases to the standard tax deduction and also adjustments to the income tax bracket. 

So, just to put into context how big of a cut this is, Hawaii previously had the second highest income tax burden in the country. Well, after this bill, we’re now gonna become the fourth lowest. 

Surprisingly, though, this bill did face some opposition. But we were supportive because we believe that the tax cuts really allow individuals and businesses to keep more of their income, which in turn can increase consumer spending and business investment. And those things really stimulate economic growth.

Not to mention, you know, you talked about the cost of living. Well, these cuts are going to help our lower and middle income earners keep up with the rising costs of living due to inflation. So, you know, one thing that is encouraging is it doesn’t seem like lawmakers are really done.

I know some lawmakers I’ve spoken to have said that this is really the first step of tax reform and hopefully we can push this further. I mean at the end of the day, and you mentioned this Johnny, but one of the biggest problems in our state is the crazy high cost of living. That’s why people continue to leave for places like Las Vegas.

And a lot of that ultimately can be attributed to our tax system. So this bill doubles the standard deduction that state taxpayers can claim when they prepare their 2024 taxes next year, and then it adjusts income-tax brackets and standard deductions upward in a series of steps in later years.

Miro: OK. Obviously, someone like me would say, “Why couldn’t this have been done in the past?” And there’s always going to be people that say well where is the money going to come for these services that are needed so critically? So touch on that.

I mean, obviously, they’re looking at Las Vegas and they’re looking at the state of Nevada and what they’ve been able to accomplish. And the population of Hawaii residents [moving there] has grown exponentially over the years. 

How much of an impetus was looking at that state in particular and keeping people here, and why hasn’t this been done before? Because this is almost — I use the term on my radio program — populist to me. This is a populist kind of a policy.

Kefalas: Yeah, absolutely Johnny. I mean, I can’t speak for really why it hasn’t been done in the past. I mean, it obviously helps that this is an election year and then legislators are looking to get reelected in a lot of cases.

But also, you know, legislators estimated that we were going to have about a $10 billion surplus in about 10 years. 

Miro: From? 

Kefalas: Just from increased tax revenues and various federal funding and whatnot. 

Miro: OK.

Kefalas: So they were able to find the money to essentially refund and give back a lot of money to our local residents.

You know, and there’s still room to move the needle even more. This is not something that’s going to impact a ton of services. I don’t think that there is any plan to cut services or any kind of essential government functions at this time.

Really, a lot of this was just excess revenue that the government was pulling in and, you know, and did the right thing and they decided to cut taxes for folks. 

All too often we hear stories of people working two, three jobs and they still can’t afford to make ends meet. And a lot of times that comes down to taxes.

So this is something that is going to put back thousands of dollars back in the pockets of our local folks and allow them to be able to spend on the things that are most important to them.

Miro: Well, let’s hope so. Let’s hope so. I saw one letter to the editor in response to this. It specifically says for working families and then someone said I’m a retiree so I’m gonna have to pay for this? So what’s your take on that as far as this is for working families only?

Kefalas: Yeah, so this is actually going to be really an across-the-board income tax cut. If you are paying into the income tax, you are going to feel this cut. And the beauty of this is that they really didn’t increase taxes in other areas to pay for it.

Again, because we had the money, we had an additional surplus there that we can pull from. So, you know, the state Department of [Taxation] calculates that these changes are really going to help pretty much everyone.

You look at, let’s just take the median household income, which is around $91,000. The state Department of Taxation actually estimates that that family is going to be paying about 70% less in taxes by the year 2031. 

So just to kind of put that into numbers, because, you know, 70%, sometimes people may not understand what that really means. Well, let’s take that same family that I was talking about earlier.

Currently that family owes about $5,300 in taxes. But by 2031, they will see that reduced to $1,600. So all in all, the bill effectively boosts the income of that family [by] around 4% every single year.

You know, I want to just say a lot of times you hear legislators talk about how this was a historic year and, you know, when you look back, they didn’t actually do much of anything. But this year was in fact a historic legislative session, and lawmakers should be applauded for taking such bold action.

This is one of the most substantial income tax relief measures our state has ever passed. And beyond serving our immediate needs, this bill will hopefully lay the foundation for future generations to inherit a more equitable tax system.

Miro: It’s Ted Kefalas, director of strategic campaigns for the Grassroot Institute of Hawaii. 

I believe we just went over what the tax cuts mean for the average family here in Hawaii. So incrementally from they said the beginning of 2025 all the way up to 2031 that’s how it’s going to work. So, families will start to feel some aspects of this come initially in 2025?

Kefalas: Correct, correct. Yeah, so this will be implemented, or folks can start this when they prepare their 2024 taxes next year.

Miro: OK, that sounds great. All right, this is, we’re talking about the legislative session that just recently closed and some of the great work that was done, and they were all able to agree upon some things, most significant being this large tax cut.

They also passed something else that’s going to help out the folks in the medical industry. The Legislature passed the big tax cut which would exempt Medicaid, Medicare, TRICARE services from the state general excise tax, and the Grassroot Institute of Hawaii [was] advocating for that. Did the governor sign that bill also or is that still to come?

Kefalas: Yeah, so the governor signed that bill along with the tax cut bill that we mentioned earlier. The lawmakers passed SB1035, again, as you mentioned, to cut the general excise tax on Medicaid, Medicare and TRICARE.

This is going to apply to medical and dental practices, and it should really, really lighten the tax burden on both patients and providers. 

You referenced this, Johnny, but we wrote a report a few years ago that pretty much looked at the case for exempting medical services from the GET, and in that report we went through all the different ways the GET is a significant expense for doctors offices and patients, which makes it difficult for our medical practices to survive and thrive in our state.

You know, I want to just highlight that Hawaii was the only state that taxed Medicare and TRICARE. Nonprofits like Queen’s and Kaiser were exempt from the GET, but private practice physicians aren’t. So pretty much any outside doctor that you go to, you’re having to pay the GET.

And because you are not allowed, federally, you’re not allowed to pass that tax on to Medicare and TRICARE patients, it means that these private practice physicians were having to pay the GET themselves. So this is something that in a lot of cases doctors were saying, “Well, I’m just not going to see those patients.”

Unfortunately, I mean, we have in Hawaii close to I believe 50% of our patients are on one of those services. So, you know, when you have doctors that are saying, “Well, I’m not going to see those patients,” all of a sudden it really shrinks down your availability to good quality healthcare access. 

So we are very excited to see that this bill get passed and hopefully allows more doctors to stay in practice and continue treating our local residents.

Miro: And that’s especially critical for the neighbor islands. Oahu, obviously, many many options, but neighbor islands it’s much more spread out and not as widely offered. So it’s been very very tough on them, and this from what you’ve heard from maybe some of the neighbor island physicians, it’s it’s a great move?

Kefalas: Yeah, absolutely. I mean, you look at the neighbor islands especially, and because it’s so rural over there, if you have your local doctor that says, “well, I’m not going to accept TRICARE or Medicare or whatever,” well, now you’re going to have to drive hours potentially to go see another doctor or come fly to Oahu.

As you know, I’ve heard tons of stories of folks that are live on the neighbor islands and have to come here to Oahu just for medical services. And of course they have to stay in a hotel and rent a car and do all of those things that really make it difficult and drive up the price, to be quite honest.

Miro: Ted Kefalas, director of strategic campaigns for the Grassroot Institute of Hawaii.

More big news: A lot of local residents of course, Ted, know that we’re in that housing crisis right now. It seems like the state Legislature, though, did a lot to address this. I know Grassroot Institute was involved in some of those measures. What do you think will be the most impactful?

Kefalas: Yeah, well it wasn’t just tax cuts that made this year so historic. Like you mentioned, lawmakers did a lot to address the housing crisis this year, and I was actually fortunate enough to be invited to the governor’s bill-signing last week for a bunch of pro-housing bills.

But to answer your question, I want to specifically highlight HB2090. As many people have seen, COVID really changed the way we live our lives. More and more people are working remote and shopping online, and unfortunately, we’re seeing more and more office spaces and brick-and-mortar stores that are just sitting vacant, not just on Oahu, but throughout the state.

So, you know, we asked ourselves, “Why haven’t these buildings been converted into housing?” We’re dealing with a housing shortage. It just kind of makes common sense. 

Well, essentially, the county government has a bunch of different rules and regulations on top of the state and international building codes. And that has made it difficult, and in some cases impossible, to convert those vacant spaces into housing. 

So this bill, HB 2090, just says that these buildings have to conform to the international building code rather than a specific county code or whatnot.

If you remember, there were a few projects here in downtown Honolulu that were being held up because they didn’t have a window in every bedroom. Well, the International Building Code doesn’t require a window in every bedroom. That requirement comes from the city, and there are a lot of similar extra requirements like that.

So this bill just gets rid of that, it tries to streamline the process and make it easier to reutilize these buildings and create more livable, walkable communities that have been missing from our housing.

Miro: And it looks like downtown Honolulu will be front and center for that. Obviously, a lot of office space is empty right now. 

Let’s see, also had a bill to allow a couple of two ADUs, additional dwelling units, on residential properties. How about that one, and what’s the status of that bill, Ted?

Kefalas: Yeah, so that one was SB3202, and it was probably the most controversial bill during the entire session. But that one was signed, as well as the bill that we mentioned earlier, HB2090. 

Now what made it kind of controversial, the original bill called for reduced minimum lot sizes, lot-splitting. And after a lot of debate, the bill kind of got watered down. So now it simply allows two additional dwellings on each residential lot. 

That’s still going to be very impactful for folks. Right now, here in Honolulu, you can either have one ADU or one ohana unit, but you can’t have both.

This changes that, and it would allow you to have two additional dwellings on your property. It also opens up the potential for more things like duplexes, triplexes. 

You know, the thinking behind this is to promote a little bit more density — not a ton, not to be putting apartment buildings or condo buildings in single-family neighborhoods. But this will gradually increase the amount of density we have in our neighborhoods.

And, you know, obviously one of the things that makes Hawaii so beautiful is the vast amount of land we set aside for conservation and agriculture. So we want to try to promote building on land that already has development on it or are homes on that land.

You know, luckily, lawmakers were able to take that courageous step and pass this bill. As I mentioned, Gov. [Josh] Green signed it, and I want to give a particular shout out to Rep. Luke Evslin who was the House Housing Chair, and he was one of the biggest champions of this bill. He really helped it get across the finish line.

But I do want to stress that, you know, none of these bills are going to be a silver bullet to solve our housing problem overnight. This is a problem that’s been built up over a lot of years and generations, so it’s going to take a lot of time to fix it.

But this is a huge start. We don’t have to solve 100% of the problem tomorrow. But if we can chip away at it, then we’ll be in a much better position in the future.

Miro: All right, so this that bill was signed or that’s still yet to be signed by the governor? That was signed?

Kefalas: That bill was signed along with the other housing bill we mentioned that will allow for conversions of office space.

Miro: OK, so that will get underway immediately, and what does that mean for the DPP [the Honolulu Department of Planning and Permitting]? I know they said they upgraded their system. What’s your guys’ take that? Any word on if they’re going to be overwhelmed? Are they ready for this?

Kefalas: Well, the hope is that they are going to be ready for it. They have some time to implement it. SB3202, they will have about two years to implement some standards. The adaptive reuse, HB2090, they have about six months to implement a few standards there.

But, you know, HB2090 is already following the International Building Code, so there’s not much that the county has to do. And really, as long as these buildings meet the requirements placed by these state laws and by the International Building Code, there shouldn’t be an issue in getting a permit with DPP. 

But, you know, that’s that’s to be seen, I guess. DPP doesn’t have the best track record unfortunately, so hopefully we can get the ball rolling there and make sure that there aren’t any additional delays.

Miro: All right. So any other bills that need to be signed that the governor’s thinking about, and is there still time for that?

Kefalas: Yeah, the governor is still looking to sign a fair amount of bills, quite honestly. One in particular that we’ve worked on would allow a temporary nurse licensure permit. But, you know, the governor has actually until July 10 this year to take action on the bill.

If he signs a bill, it obviously becomes law. If he plans to veto a bill, he actually has to inform the legislature before that July 10 deadline. I believe he has to let them know by June 25. So there’s still some time. 

I want to also just note that if the governor doesn’t do anything by that July 10 deadline, the bill still becomes law without his signature. But, you know, these next few weeks are really critical. If there’s something you support or oppose that hasn’t been signed yet, now’s the time to reach out to Gov. Green’s office and let him know before it’s too late.

Miro: This is where all that “Schoolhouse Rock,” viewing, the education you got when you were growing up, comes to the forefront. 

Now we’re talking about the cost of living here and I know Keli‘i Akina, the president CEO of Grassroot Institute of Hawaii, is a huge advocate of getting the Jones Act reworked.

I know it’s totally different, but it also deals with the cost of living. What’s your take on it, just from your take, Ted Kefalas, that Ed Case has really been on the forefront of this? Because that would significantly, according to people, would really drop down also the cost of living? What’s your take on that possibility in the near future?

Kefalas: Yeah, Rep. Case has been a great champion to try to reform the Jones Act. We actually have worked closely with him, as well as a few other legislators, just trying to figure out ways to lower that cost of living.

Just to give a little reminder to some of your listeners that may not be aware of the Jones Act, the Jones Act requires anything coming from a U.S. port to be shipped on a ship that’s made in the U.S., owned in the U.S., with a U.S. crew and U.S. flag.

Where that becomes a big issue is really in that shipbuilding portion because as with anything, items that are made in the USA are typically much more expensive than their foreign counterparts. If you look at ships that are built in Japan and South Korea — two of the biggest shipbuilders in the world — they are actually about a fifth of the cost of a U.S.-built ship.

The Jones Act — we’ve done a few studies — we found that it actually cost Hawaii about $1.2 billion every single year. And so we’re continuing to try to explore ways to limit the impact that the Jones Act has on Hawaii. 

We’re actually undergoing right now a 50-state study to try to find the impact, not just in Hawaii, but how this impacts Texas and how this impacts New York. And there are so many other areas that are feeling the wrath of the Jones Act. 

And all too often when you see a hurricane or a natural disaster and the government will waive the Jones Act requirements, well, in our mind, you know, it shouldn’t take an act of God or some sort of emergency to waive the Jones Act. 

If it’s clear that it’s a bad idea in emergencies, then it’s clear that it’s a bad idea during the good times as well.

Miro: And thanks for letting me tie that question in. It’s all about bringing down the cost of living here to keep our local residents here instead of moving to the mainland to find a cheaper living. So we want to keep them here as much as possible.

So great job. How can people stay informed and up-to-date on all these issues, Ted Kefalas?

Kefalas: Yeah, I want to encourage folks to go on our website at grassrootsinstitute.org and sign up for our newsletter. Every week our team publishes a weekly report; it has a breakdown of all the most important things that happen.

Our president, Dr. Keli‘i Akina, also publishes a “President’s Corner” every week with some thoughts about pressing issues and current events, and we really just want to make it as easy as possible for people to understand what’s happening in government and how they can get involved.

So again, if you go on our website, it’s grassrootsinstitute.org — that’s dot org not dot com. And you can go sign up for our newsletters and our “President’s Corner.” 

And if you’re on social media, go check out our Instagram page.

We’ve got thousands of followers there, and it’s really a place for us to have a little fun where we’re still trying to educate and inform local residents about what’s truly happening. So give us follow at grassrootHawaii on Instagram.

I also just want to thank you, Johnny, and the H. Hawaii Media team for having us on today and really appreciate the opportunity to talk about these issues.

Miro: And you make it easy to understand, along with the other members of Grassroot Institute of Hawaii. Great job, Ted, and thanks for calling this morning and we’ll talk to you soon about another important topic here locally, all right, and enjoy the rest of your Sunday.

Kefalas: All right thank you, Johnny. Look forward to it.