Volcanic Ash: Income tax cut imperfect, but a welcome surprise

May 5—1/1

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CINDY ELLEN RUSSELL / CRUSSELL@STARADVERTISER.COM

Senator Donovan M. Dela Cruz, Chair.

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The Legislature's significant income tax cuts were a pleasant relief to Hawaii residents struggling with our state's steep cost of living in inflationary times, even if the benefits skewed a bit too much to those already well-off and left possible holes in future budgets.

Lawmakers found themselves unexpectedly flush with cash even after having to come up with $1 billion to help Maui recover from wildfire damage.

In a year when it initially looked like legislators might have to tap the state's $1.5 billion "rainy day" fund, they ended up with so much money to play with that they were able to actually add $300 million to the emergency fund.

The situation cried out for giving some of the windfall back to hard-pressed taxpayers, and the income tax cuts were a good way to do so.

With a combination of increases in the standard deduction and tax bracket adjustments to account for inflation, Senate Finance Chair Donovan Dela Cruz estimated the state income tax burden on working families will drop 71% by 2031.

He said a family of four earning $88,000 will see its tax bill decrease from $5,100 now to about $1,500. It doesn't solve Hawaii's nationally high cost of living driving many locals away, but takes a real chunk out of it.

While Democrats and Republicans alike could fairly laud the tax cut as Hawaii's biggest ever, Rep. Amy Perruso was also fair in complaining the cuts give unreasonable benefit to well-off taxpayers who don't need the help.

Pointing to a study by the Institute on Taxation and Economic Policy, Perruso said 42% of the benefits will go to the top 20% of earners, who make $147,000 a year or more. It's the "or more" — way more — who are of most concern, as an income of $147,000 certainly doesn't make you rich in our high-cost state.

The tax cuts are projected to reduce state revenues by $1.3 billion by 2031, an amount that could have been greatly lessened by easing up cuts for those already doing very well.

If we don't put a more equitable burden on well-heeled taxpayers, those on the lower end of the economic spectrum will end up paying for the deficit through higher future levies for state programs they depend on, negating these cuts.

Over-generosity toward wealthier taxpayers — through relatively low property taxes on high-end homes and a regressive general excise tax in addition to the friendly income tax structure — is at the root of many of Hawaii's problems.

These tax policies tend to attract offshore speculators who buy up residential properties that are often kept vacant or used for vacation rentals, taking badly needed rentals for locals off the market and turning neighborhoods into de facto resort districts.

Struggling workers skew younger and wealthier taxpayers older, turning on its head the American value that parents sacrifice so their children can be better off.

But the need for greater income equality through more fairness in the way we tax is an issue for another Legislature. It's no reason to withhold credit for the good judgment of this year's group in providing a substantial tax cut that was needed and unexpected.

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Reach David Shapiro at .

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