HONOLULU (AP) – Hawaii is considering overtaking California as the state with the highest income tax rate in the nation, according to legislation slated to vote this week.
The Hawaii Senate was expected to vote Tuesday on a bill that would impose a 16% tax on those with annual income greater than $ 200,000, giving California 13.3% on those who earn more than $ 200,000 Make a million dollars.
Hawaii’s proposed new rate would also exceed the highest combined local and state tax rate in the country paid by the highest income earners in New York City, which is currently 12.7%.
Hawaii has suffered a sharp drop in tax revenue as tourism slumped during the coronavirus pandemic, prompting lawmakers to look for new sources of income.
The invoice includes increases in capital gains tax, corporate income tax, and taxes on sales of high-end real estate. The Senate’s Committee on Means and Ways unanimously passed the measure last week.
Senator Donovan Dela Cruz, chairman of the committee, said Hawaii has a budget deficit and the governor has warned that he may have to take government employees off. Dela Cruz said the state was delaying payments to employee pension funds and other retirement benefits to keep the government going.
“We are in a dire situation and we need our top earners and those who buy luxury homes to help us through this situation so we can ensure that critical services are uninterrupted,” said Dela Cruz, a Democrat.
The prospects of the bill in the House of Representatives were uncertain. House legislators have passed their own laws raising the capital gains tax. They are expected to vote on Tuesday to allow counties to charge a surcharge on the state hotel tax.
The state’s top income tax bracket is currently taxed at 11%, where it has been since 2018. The 16% rate would expire after 2027 according to the law.
Dale Arthur Head, a retired Pearl Harbor Naval Shipyard worker who lives on Oahu, submitted a written statement saying that many people lost their jobs during the pandemic and those who are more blessed have ” this modest increase ”.
Taxes for the rich have been falling for decades while social programs have been cut, he said.
“It’s not fair to people,” Head said in an interview.
Beth Giesting, director of the Hawaii Budget and Policy Center, submitted a written statement stating that due to various deductions, exemptions, and tax credits, Hawaii millionaires currently only pay an effective tax rate of only 6.8%. The bill would increase the amount actually paid by high-income people, she said.
However, critics say the increase will also ensnare businesses whose owners, as individuals, collect taxes.
Jared Walczak, vice president of government projects at the Washington, DC-based Tax Foundation, an independent tax policy not-for-profit organization, said 95% of businesses across the country levy taxes in this category rather than the corporate income tax category.
They are known as “pass-through” businesses because their income goes into their owners’ income tax returns. Such companies – for example partnerships, sole proprietorships and limited liability companies – employ 40% of the country’s workers, Walczak said.
Hawaiian businesses are already required to pay an unusual levy called a general consumption tax. It is similar to sales tax in that it is collected on retail sales, but it is also much broader – it taxes all business activities, including wholesale and manufacturing.
The country’s highest income tax rate, combined with this general consumption tax, would be a “significant double blow” for Hawaiian companies, Walczak said.
“Hawaii relies heavily on the fact that it is Hawaii: people want to live in Hawaii, they want to vacation in Hawaii. This can help you get away with higher taxes. However, it is not unlimited. And some individuals and companies are really going to struggle with soaring taxes that are hugely limiting their margins, ”he said.
Brad Nicolai, president of JN Group, which operates 26 automotive and motorcycle franchises across Hawaii, said companies are just emerging from the pandemic and are slowly trying to bring employees back.
Labor costs are often the highest variable cost for Hawaiian companies, and some companies will have to consider cutting their headcount when the tax hike goes into effect, he said.
“There is only a limited amount that can be passed on to customers in any store, and the rest has to be absorbed by the store itself,” said Nicolai.
Companies will put investments on hold and plans to hire more workers on hold, he said. Nicolai wished lawmakers would take into account these second- and third-order effects on the economy.
The plethora of tax hikes in the Senate bill made it an “all-in-one economic time bomb,” he said.
“It’s really frustrating, frankly, for business people,” Nicolai said.
