Sound Fiscal Policy Failure: Aloha State Joins California, Maryland, New York and New Jersey in Going After High-Income Earners with New Tax Brackets

Washington, DC, May 13, 2009 - Despite a veto from Governor Linda Lingle (R) last week, the Hawaii Legislature forced through several tax increases on Monday, including the addition of three income tax brackets on top of the current nine: 9 percent on income over $150,000 ($300,000 for joint filers), 10 percent on income over $175,000 ($350,000 for joint filers), and 11 percent on income over $200,000 ($400,000 for joint filers). By adding the 11% bracket, Hawaii will move from eighth to first in the ranking of top state income tax rates, passing Maine, New Jersey, Iowa, Oregon, Vermont, Rhode Island and California.

In Tax Foundation Fiscal Fact No. 169, director of state projects Joseph Henchman and analyst Mark Robyn find that with its new, dramatically higher income tax rates, Hawaii becomes the fifth state to adopt a so-called "millionaires' tax," joining California, Maryland, New Jersey and New York. Such taxes are unique in that they impose a top rate near or above 10% on a small subset of high-income earners. Henchman and Robyn point out that Hawaii's decision is a poor one when it comes to sound fiscal policy.

"States that adopt new taxes on high-income earners are ones where policymakers are persuaded to ignore concerns about long-term economic growth in favor of a short-term budget fix that avoids deep spending cuts," Henchman and Robyn argue. "In New Jersey, while the new millionaires' tax raised revenue for the state and helped reduce a budget shortfall, it reduced the state's overall economic output and harmed its ability to grow during and after the recession."

Also included within the legislation are tax increases for hotel accommodations, property and cigarettes.

Fiscal Fact No. 169 can be found at http://www.taxfoundation.org/publications/show/24693.html.

The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.

(Actually the risk is "cow drain", not "brain drain" because in Hawaii, high earners are milked for their money rather than being harnessed for their entrepreneurship.)

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Advertiser: Hawaii's high taxes will cause 'brain drain,' policy group warns