Robust debate over
Gov. Josh Green’s proposal to cancel future state income tax cuts took place Tuesday at the Legislature during a public hearing on one of two bills introduced to implement the stoppage.
More than 170 individuals and organizations delivered testimony in writing or in person for the first hearing on House Bill 2306, which
received support from several social welfare organizations, Green administration representatives and about 30 individuals, in contrast to opposition from about 140 individuals and a couple of organizations.
Green wants to repeal the last five years of a historic package of annual tax cuts, which began in 2024, to preserve about $1.8 billion in state revenue from 2027 to 2031 as a way to partly offset nearly $3 billion in anticipated state revenue losses due to recent federal
government actions.
Under HB 2306, about $600 million of the preserved revenue would fund costs to extend a sunset date for an elevated state earned income tax credit and a food/excise tax credit to 2032 from 2027, and to triple the size of a child and dependent care tax credit.
Representatives of the governor told the House Finance Committee in a mix of written and in-person testimony that an already “historic level” of tax relief delivered from 2024 through 2026 representing 70% of all savings from the eight-year package will be maintained.
Because lower tax rates through this year will continue at the 2026 level beyond this year, Green’s office said Hawaii families will save $5.4 billion over the next five years after $1.5 billion this year under his proposal.
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Will Kane, a senior adviser to Green, described the bill to committee members as a “measured approach” to balance tax relief with funding needs for essential services.
Some House Finance Committee members questioned whether the governor’s approach is the best one to deal with the state’s somewhat uncertain financial outlook.
Rep. Kyle Yamashita
(D, Pukalani-Makawao-Ulupalakua) said state Tax Department data showed
in 2024 that many lower-income households don’t claim tax credits, and he suggested it would be more beneficial to keep tax cuts for lower-income households.
Yamashita also wanted to know if the Green administration had looked at a net decrease in state spending.
“It was brought up that it’d be prudent for the Legislature to maybe look into tightening our own belt first before we ask people to have a delay in what we promised,” Yamashita told Kane.
Kane said the administration considered spending cutbacks but didn’t propose a smaller state budget.
Reps. Joe Gedeon (R,
Hawaii Kai-Kalama Valley) and Ikaika Hussey (D, Kamehameha Heights-Kalihi Valley) also were interested in the state tightening its belt.
Rep. Lisa Kitagawa (D, Kaaawa-Kahaluu-Kaneohe) expressed concern over how lower-income households would make out with tax credit changes instead of tax cuts under HB 2306.
“How are lower-income working families still getting tax relief from this bill?” she asked.
Kristen Sakamoto, Tax Department deputy director, described various income eligibility levels for the tax credits, including households earning the least that benefit from the food and excise tax credit. But a net difference wasn’t presented.
Some public testimony supporting the bill criticized the 2024 tax cut law for its across-the-board relief benefiting households with the highest incomes in addition to middle-class and low-income taxpayers.
“As written, these cuts overwhelmingly favor the wealthy as households,” Will White, executive director of the Hawai‘i Appleseed Center for Law and Economic Justice, told the committee. “And this bill allows us to reset and rethink what a truly fair tax code looks like for Hawaii.”
Nicole Woo, director of research and economic policy for Hawai‘i Children’s Action Network Speaks!, said the top 10% of income earners benefiting from more than $12,000 a year in tax savings have annual income topping $1 million on average.
“So, this bill really does ask those who can afford to give up tax breaks to give up some pretty large ones,” she said.
Nate Hicks of the Hawai‘i Public Health Institute told the committee that the top 20% of earners would save $600 million out of $1.4 billion in total savings for one year under the current tax relief package, including $100 million for the top 1%.
Hicks said revenue saved by freezing the tax cuts where they are could be used to fund social service initiatives. “We can turn around 10 years from now and say this was the opportunity we took to make sure Hawaii is affordable for everybody,” he said.
Lauren Zirbel, executive director of the Hawaii Food Industry Association, urged the committee to reject
HB 2306, and said Hawaii already has the fifth-highest income tax burden and the highest overall tax burden among all states.
When Green enacted the 2024 income tax cut package, he said it would take Hawaii from having the second-highest tax burden among states in 2023 to fourth-lowest in 2031.
Zirbel suggested a wealth tax as a better option to shore up state finances.
Ted Kefalas, director of strategic campaigns for the Grassroot Institute of Hawaii, told the committee that approving the governor’s bill won’t just prevent rich people from obtaining more state income tax relief.
He said a family of four making $50,000 would see their tax bill shrink 85%, or by $1,700, if the full eight years of relief is realized, and that the $12,000 savings for a household making $500,000 would represent a 28% tax reduction.
“So yes the dollar amount is bigger in the second example, but the proportional relief is greater in the first,” he said. “That’s exactly how progressive income tax rates work. Higher earners see larger dollar savings because they pay more.”
Raphaela Che, a single mother and registered nurse, said in written testimony that she lives paycheck to paycheck and asked that lawmakers try
to provide more tax relief
instead of less.
“I hope you lawmakers can do the math and tell me how one can get out of poverty in Hawaii,” Che wrote.
The 16-member committee did not vote Tuesday on whether to advance HB 2306 for consideration by all 51 House members. A vote is scheduled for today.
On Thursday, the Senate Ways and Means Committee is slated to hold an initial public hearing on the same proposal from Green put forth in Senate Bill 3125. This hearing is scheduled for 10:15 a.m.