February 10, 2005

Progressive Tax Cuts in Hawaii?

In many states, lawmakers are just hoping to get through 2005 without major tax increases. But things are looking a little more relaxed in Hawaii, where two competing approaches to tax cuts are being discussed in the legislature; Governor Linda Lingle's tax relief package includes progressive income tax cuts, while Representative Calvin Say in the House (HB1708) and a group of Senators seek to target tax cuts to wealthier Hawaiians. (SB1740).

The Governor wants to increase the standard deduction to half of 2004 federal amounts (HB726 & SB835) and create a refundable $55-per-person sales tax credit for households earning up to $40,000. (HB727 & SB836). Each of these proposals would be gradually phased in-- a sensible idea given the uncertainty of the state's projected surplus.

The legislative plan would widen the income tax brackets for married couples while leaving the tax brackets for singles unchanged, and would drop the bottom tax rate from 1.4% to 0.7% for married couples (no change for singles).

An ITEP analysis shows that the Governor's tax plan would cut taxes primarily for low- and middle-income Hawaiians. On the other hand, the kegislative plan would primarily benefit Hawaii's wealthiest taxpayers. If fully implemented in 2004, the Governor's package would cost about $50 million a year, while the legislative plan would cost just over $100 million.

Hawaiian lawmakers have the luxury (so far) of avoiding painful tax hikes. Let's see if they can do the right thing with any available surplus.


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