In my 50 years as a tax professional, I have never met anyone who wanted to pay taxes, nor anyone who thought they had enough money.

I understand that. I also understand, however, that for some, the tax bill can be what shoves them over the precipice.

Senate Bill 648/House Bill 209 propose to use the extra revenue from a tax on the top income-earners akin to what Governor Lingle introduced which lasted until 2015 to update the Food and Renter’s Credits and adopt the Federal Working Family Credit for low income earners. Those living paycheck to paycheck and barely getting by, currently pay up to 13 percent of their income in state and local taxes, while our wealthiest pay just 8 percent of their income.

Not only does this seem unfair on its face, it makes no economic sense to tax people into poverty, which hurts all of us.

Now more than ever we need to act independently. With the current federal administration, we are very likely to see even lower tax rates on the very wealthy, along with less federal funds for local community services. Our legislators need to ask what we can do ourselves to keep people here from falling even farther below income levels needed to support a family.

The Institute for Taxation and Economic Policy in Washington, D.C., estimates that the Hawaii government would see $75 million in revenue per year through SB648/HB209. These revenues would flow directly to alleviating the precarious economic state of thousands of our working families and keep them from sliding into even further poverty or homelessness.

All Round Efficiencies

Reinstating the higher income tax brackets and using the funds for tax credits for low-income earners is very efficient. The wealthiest get state tax deductions at higher federal rates, and the credits go to individuals in lower brackets, who may not even itemize deductions, and thus have little increased federal tax. In effect, the feds absorb some of the cost of the increased state tax on the wealthiest, while the credits generate little or no federal tax cost to the recipients.

Moreover, allowing those at the margins to keep more of what they earn, incentivizes them to work. This also ensures that the money will, of necessity, be spent, not merely invested. This is good for working families and good for the economy as every dollar that is spent, goes around something like 15 times. 

Are Higher State Income Tax Rates Fair?

As a Hawaii tax lawyer for 45 years, I often heard complaints that taxes are too high. But when I joined the IRS in Washington, D.C., in 1967 the top marginal rates had just dropped from 90 percent to 70 percent. Later, when the country was most prosperous, rates dropped to 50 percent. Presidents Reagan and Bush II’s supply side economics brought top rates down to 35 percent and dividend tax rates to 15 percent. Those actions helped get us to our current 1:99 income and wealth distribution ratios.

So my conclusion is that adding tax brackets of .75 percent on the portion of a family’s taxable income over $300,000 and up to 2.75 percent (1.6percent net of fed tax) on the income over $400,000 to reduce the tax burden on those who are making far less, is reasonable and makes good tax and economic sense. I believe this is an excellent step towards remedying some of the inequities of our society—and addressing some of the problems consuming our state.

The legislature needs to pass SB648/HB209 this session. It’s only fair.\

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