The implementation of this bill would signify a crucial shift in Hawaii's approach to taxation, prioritizing fairness and support for working families amidst rising living costs.
Impact
The bill also aims to enhance the economic security of local families by making the earned income tax credit (EITC) refundable and permanent. Currently, Hawaii's EITC is non-refundable, limiting its effectiveness for many low-income households. By allowing refunds, the state hopes to provide more direct financial assistance to working families, potentially creating a net economic benefit as each dollar of the credit is expected to generate $1.24 in economic activity according to Moody's Analytics. This change is intended to address the regressive nature of Hawaii's tax system, which unfairly imposes a heavier burden on low-income individuals compared to wealthier residents.
Summary
Senate Bill 2485, known as the Tax Fairness Act, seeks to reform the tax system in Hawaii by implementing two major changes. First, it proposes to increase the tax rate on capital gains, which currently offers significant tax advantages primarily benefiting wealthy individuals and non-residents who invest in island real estate. The anticipated increase in tax revenue from this adjustment could generate significant funding for state programs, projected at over $132 million in the first fiscal year alone and escalating to approximately $187 million within six years. These funds could reinforce essential public services and alleviate the financial pressures on residents.
Contention
However, the bill is not without its points of contention. Proponents argue that reforming the capital gains tax and improving the EITC are essential steps towards achieving greater tax equity and relieving the financial strain on working families in Hawaii. On the opposing side, critics may express concerns about the potential negative impact on investment and economic growth resulting from increased capital gains taxes. Wealthier constituents and property owners might lobby against the bill, arguing that it could deter investment in the state and exacerbate the cost of living issues, which are already at critical levels.