2025 Legislative Also-Rans

by Tom Yamachika, President Tax Foundation Hawaii

Last week, we covered the key bills that made it out of the legislature and to the governors office.  This week, will be looking at a few bills that passed both houses of the legislature, but did not make it through conference.  Those bills may come back to haunt us next year. 

House Bill 476 is at the top of this week’s list.  The bill would have increased the maximum capital gains rate for income tax.  Now, for individuals the maximum capital gains rate is 7.25% while the top individual rate is 11%.  For corporations, the maximum capital gains rate is 4% while the top corporate rate is 6.4%.  The bill would have changed the rates to __% and __%, respectively.  Technically, we don’t know if an increase or decrease was intended, but the chatter around the bill indicated that legislators were thinking of an increase.  And even if it were an increase, some of the progressive groups were saying that the bill didn’t go far enough, arguing that we shouldn’t have any limit on the tax rate for capital gains.  In other words, capital gains should be taxed like any other income.  Earlier in the session, we wrote about this bill in more detail.

Senate Bill 439 would have directed our Department of Land and Natural Resources to adopt rules to implement a user fee for visitors who want to go to parks, beaches, trails, or other natural attractions.  Those fees, however, were to be imposed only upon nonresidents.  After all, we residents pay income taxes, general excise taxes, property taxes, and many other taxes, and non-residents pay, well, general excise taxes, transient accommodations taxes, rental motor vehicle taxes, and JEEZ, sometimes it’s really hard to tell who’s getting the short end of the stick.  Instead of implementing this so-called visitor Green fee, this year’s Legislature settled on a 0.75% increase in the transit accommodations tax.  The good folks in the Governor’s office, however, introduced bills to raise that tax by 1.75%, so they got somewhat less than they asked for.  This may mean that we are going to see this bill, or something like it, next session.  Are we ever going to stop treating our visitors like cattle to be milked, as we've written about before?

And then we have House Bill 202, which proposes to redefine the term “adequate reserve fund” for purposes of the unemployment tax law.  As we explained earlier this year, that redefinition amounts to a tax increase, and perhaps a substantial one at that.  It all happens because the bill, in effect, directs the tax system to make the unemployment reserve fund larger without giving it any more money.  Because the unemployment tax system is designed to be self-correcting, any perceived shortage in the fund triggers tax increases to make up the difference.  The redefinition proposed by the bill, when fully phased in, would jack up unemployment insurance rates by two notches in the rate schedule.  This would have different effects for different people but could result in a 40% tax increase for an average employer in a typical year.  The state Department of Labor and Industrial Relations pushed for the bill this year.  The bill didn’t pass, leaving us wondering whether they are going to try again next year.

Why are we even worrying about 2026 if the ink is not yet dry on 2025? Well, to be forewarned is to be forearmed.  We taxpayers need to be ready when the legislative proposals do come down the pike.