The Cato Report Cards

by Tom Yamachika, President, Tax Foundation Hawaii

The Cato Institute is a nonprofit organization, based in Washington, DC, that promotes fiscal and regulatory restraint and opposes the spiraling growth of government spending.  Every two years, it puts out a Fiscal Policy Report Card on America’s Governors. 

Before we tell you how our Hawaii fared in 2024, let’s go through some history. 

In 2016, after David Ige defeated Neil Abercrombie on a campaign that cited Abercrombie’s tax hikes, Ige let the Abercrombie hikes expire but then enacted a few others.  General fund spending shot up, prompting Cato to give him an F. 

Two years later, still under Ige’s administration, Hawaii enacted an earned income tax credit but established new, higher individual income tax rates to pay for it, namely our 9%, 10%, and 11% income tax brackets.  The GET surcharge to fund Honolulu rail got extended, and the transient accommodations tax was also raised.  Another F from Cato.

In the 2020 report, Cato recognized that Ige signed an estate tax hike into law but also noted that he vetoed a couple of tax hikes bills.  One of the vetoed bills would have raised income taxes on real estate investment trusts, or REITs, by disallowing a key deduction allowed under federal law.  The other would have clobbered vacation rental companies such as Airbnb.  For that bit of restraint, Cato gave him his first D. 

The next report card was issued in 2022, after the COVID-19 pandemic.  With Hawaii awash in federal aid money, he earned an even better grade by not simply keeping the federal money but returning some $250 million by giving residents refund checks of $300 or $100, with higher earning households pulling down a smaller amount.  That was enough to get Cato to promote Ige again, this time to a C grade. 

This year, 2024, is the first report card for the Green administration.  Under his watch, the State enacted its biggest income tax cut ever.  Cato had this to say:

The legislature followed through with HB 2404, which included even larger income tax cuts than Green had proposed.  The governor signed the bill, which doubled standard deductions and will cut taxes in future years by adjusting income tax brackets.  If the reductions proceed as planned, the average effective tax rates on middle-income earners will be cut roughly in half by 2031, with larger cuts at the bottom and smaller cuts at the top.

This was a large tax cut, particularly in a state that rarely cuts taxes.  However, the law did not reduce Hawaii’s high top tax rate of 11 percent.  Nonetheless, taxpayers will save more than $3 billion over the first five years, which is one of the largest state tax cuts relative to total tax revenues among the states in recent years.

Green has held the general fund budget quite flat and has been willing to trim excess spending passed by the legislature.  For these reasons, Green is the highest-scoring Democrat in this study.

Cato gave Green a B grade this year and ranked him seventh.  The governors in the top six states (in order, Kim Reynolds of Iowa, Jim Pillen of Nebraska, Jim Justice of West Virginia, Sarah Huckabee Sanders of Arkansas, Kristi Noem of South Dakota, and Greg Gianforte of Montana) were all given A grades.  At the other end of the class curve, all receiving F’s, were all Democrats (Tony Evers of Wisconsin, John Carney of Delaware, Jay Inslee of Washington, Janet Mills of Maine, Kathy Hochul of New York, and, receiving the banana prize, Tim Walz of Minnesota).

For further details, please take a look at the Cato Institute white papers.

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