Hold On to Our Gains!

by Tom Yamachika, President, Tax Foundation Hawaii

Last year, the Legislature passed, and the Governor signed, the biggest individual income tax cut in Hawaii’s history.

The 2025 Legislature is now in session. Hold on to your wallets, folks, because nobody’s safe now.  As we predicted, there are some bills in the legislative hopper that would get rid of that tax relief. Here are some of them, in no special order:

House Bill 234 (Quinlan), for example, would exempt all income below $100,000 per taxpayer, but would then tax income at rates from 7.9% to 12%, undoing last year’s bracket changes.  Our highest income tax rate is 11% now, so this bill is looking for an upgrade to our highest tax rate.

House Bill 959 (Kila, Evslin, Lamosao, Lowen, Morikawa) and Senate Bill 1043 (Keohokalole, Aquino, DeCoite, Wakai) would exempt the first $100,000 per taxpayer also, and then would tax income at rates from 8.25% to 11%, also undoing last year’s bracket changes.  For good measure, the bill also hoists our GET.  Some language in the bill says the intent is to raise it to 6% over time, but the actual tax rates are blanked out in the bill so there is a chance that the actual damage might not be revealed until the very last minute.  The bill also includes some broad exemptions from tax such as an exemption from GET for food and nonprescription drugs, and an income tax exemption for unemployment compensation benefits.

House Bill 928 (Perruso, Belatti, Grandinetti, Iwamoto, Kapela, Kusch, Poepoe) and Senate Bill 1649 (Rhoads, San Buenaventura) would leave the current tax rates and brackets intact until 2030, when the bill would allow a 16%(!!) tax rate to kick in on income over $1.9 million.  That new rate would boot California off its throne as the state with the highest tax rate; it now burdens its millionaires with a measly 13.3% tax rate.  Want to have wealthy folks live or retire in Hawaii and spend some of their cash here in the State?  This new rate would scream “Go away!” at them.

Next, for those of us concerned about the “Empty Homes Tax” being proposed in some counties, as we have written about in Honolulu for example, some legislators have their own version for us to worry about. House Bill 489 (Iwamoto, Perruso) and Senate Bill 1214 (Moriwaki) impose the GET on the “imputed” rent that a hypothetical renter would have paid to stay in a vacant house or apartment, and on the “imputed” purchases that hypothetical renter would have made while renting.  “Imputed,” however, is just another way of saying “made up.”  Counties will be required to tell the Department of Taxation which houses they have classified as non-owner occupied, but the rest, including figuring out whether the house is indeed vacant and what numbers to make up if it is, will be left to Taxation.  To add to the fun, the bill also provides a reward of up to 25% of the collected surcharge to an individual who snitches on the person assessed.  The logistics on how this will work are murky at best.

This, of course, is not all.  Lots of other fun stuff is being considered by lawmakers in this session, and we will do our best to use this space to bring you the highlights and low lights on some of the shenanigans, I mean proceedings, taking place in the big square building on South Beretania Street.