If enacted, HB1141 would significantly alter the individual income tax framework in Hawaii. While it would relieve tax obligations for the lowest income brackets, the bill acknowledges a potential loss of $198 million in revenue derived from these changes. To compensate for this reduction, the proposal includes minor increases to taxes such as the general excise tax and transient accommodations tax, which shifts some of the tax burden to non-residents and tourists. Overall, the legislation is positioned as a step towards creating a more equitable tax system while ensuring the state’s fiscal stability.
House Bill 1141, introduced in 2023, aims to amend Hawaii's tax structure by repealing the individual income tax for single filers and heads-of-household making less than $20,000 a year, or joint filers making less than $40,000. The bill recognizes that Hawaii's current income tax rates disproportionately affect low- and moderate-income households, exacerbating their financial struggles. The legislation proposes a gradual scaling of tax rates for low- and middle-income earners while seeking to maintain overall state revenue levels through slight increases in other tax areas, such as the general excise tax and tourism-related taxes.
Despite its intentions, HB1141 raises concerns regarding the long-term implications on state revenue, particularly given that past data indicated that over 72% of income tax revenue comes from earners making over $75,000. Critics may argue that relying on tourism and consumption taxes could make the state more vulnerable to economic downturns. Additionally, the proposed shift in the tax burden from income tax to consumption taxes may disproportionately affect lower-income residents, prompting ongoing debates about the equity of the tax system and the adequacy of public services funded through these taxes.