Relating To Capital Gains.
The anticipated revenue from this change is considerable, with projections indicating that it could bring in over $132 million in the upcoming fiscal year and increase to approximately $187 million within six years. This revenue is intended to support essential government programs such as public education, affordable housing, mental health services, and childcare access. The bill's proponents believe that this financial support is crucial for enhancing public services and promoting economic stability within the community.
Senate Bill 358 proposes a significant change to the state's tax system by taxing capital gains income at the same rate as ordinary income. The bill is motivated by findings that Hawaii's tax system is disproportionately burdensome on working families, with lower-income households paying a much higher percentage of their income in state and local taxes compared to wealthier households. By aligning the capital gains tax rate with that of ordinary income, the bill aims to address this disparity and generate significant additional revenue for the state.
However, there are notable points of contention surrounding SB358. Critics argue that taxing capital gains at the ordinary rate will primarily impact wealthy individuals and nonresidents investing in Hawaii's real estate market. They express concerns that this shift could discourage investment in the state and contribute to slowing economic growth. Conversely, supporters of the bill maintain that the reform is a necessary step towards achieving greater equity in the tax system and that the potential for increased revenue will ultimately benefit all residents.