Hawaii Residents See Largest Tax Cut in State History 

by Atticus Vernacchio, Americans for Tax Reform, 01/21/2025

On January 1st, HB 2404, the single largest income tax cut Hawaii has ever seen went into effect, providing sorely needed relief for one of the country’s most economically harmful income tax systems. This bill was the culmination of years of efforts from the Grassroot Institute of Hawaii, whose work on HB 2404 got them the “biggest win for freedom” award from the State Policy Network (SPN). 

The bill’s most immediate and broad-based reform is that it doubles Hawaii’s standard deduction, extending a hand to the state’s struggling middle and low-income households, who don’t often itemize. This increase will be repeated again in 2026, 2028, 2030, and 2031, totaling a massive 450% increase in tax-exempt income for single and joint filers. 

This change in and of itself would be a significant win for taxpayers, but it gets better. 

The bill also promises to eliminate the lowest bracket and raise the income threshold requirements. This process, which will be repeated three times over a seven-year period, craftily allows the democrats to tout their tax system as “progressive.” In reality, every single bracket and every single Hawaiian will see a significant tax reduction. 

The two reforms combined will lead to a 132% liability reduction in the lowest taxable income decile, who will not only no longer have to pay, but in fact receive a refund from already existing tax credits. The middle-income decile – those earning around $92,000, will see a liability reduction of 71%, and the highest will see a reduction of 19%. 

This cut is so massive it will reduce the state budget by around a billion in the first year. 

Of course, Hawaii still has twelve tax brackets, the most in the country. It will take a lot more work to simplify the system. HB 2404 nevertheless stands as a major victory that, with any luck, will stand as a catalyst for further reform.  

However, as the Grassroot Institute warns, Hawaii’s need to fully implement the income tax cut initiated this year is pressing. In FY 2023 alone, the state suffered a loss of nearly 4,300 people and a recent survey from the Holomua Collective indicates that those who have stayed are quickly tiring of Hawaii’s unaffordable cost of living.  

“Despite high job satisfaction, the crippling cost of living in Hawai‘i is driving many to consider moving to more affordable states. A staggering 70% of respondents say they will – or are unsure if they will – relocate in the coming years,” the study argues.  

Democrat and Republican lawmakers came together to make this bill: Hawaii can’t afford to change it, not while their population is bleeding. The Grassroot institute and other organizations like it will pave the way forward, but they can only do for Hawaii what legislators are willing to accomplish.