The new tax would apply to people with a net worth of more than $20 million.

A key Senate committee gave preliminary approval Thursday to a measure that would impose a new tax on Hawaii’s wealthiest residents in what one senator described as an effort to reduce income inequality.

This is the second consecutive year the Senate Judiciary committee led by Sen. Karl Rhoads has advanced such a proposal. A similar measure died in the Senate Ways and Means Committee last February.

This year’s version is Senate Bill 925, which would levy “a tax on the activity of sustaining excessive accumulations of wealth by every qualified taxpayer.” It would impose a tax of 1% of net worth per year on taxpayers with assets of more than $20 million in assets in Hawaii.

A key Senate committee voted to advance a new ‘wealth asset tax,’ on residents with more than $20 million in net assets. (David Croxford/Civil Beat/2023)

The net worth of each taxpayer would be determined by rules to be developed by the state Tax Department based on the taxpayers’ properties, stock holdings, partnerships and other assets.

Will Caron, who testified as an individual, argued that lawmakers should approve the bill because “it’s time for the wealthiest among us to pay their fair share of taxes.”

“When the super rich take unfair advantage of the many loopholes in the tax code, the rest of us are forced to pick up the tab,” Caron said in written testimony. “At the same time our public infrastructure, our schools, our natural resources and our housing ecosystem have all been chronically under-funded for years.”

Rhoads said in an interview that the “incredible wealth inequality” in the United States today is hurting the economy “because the people at the top of the scale just don’t spend all their money. And you know, the economy does better if you have the wealth spread out more.”

The measure was introduced by Rhoads and co-sponsored by Sen. Stanley Chang.

However, the Grassroot Institute of Hawaii warned that such a tax would likely prompt wealthy residents to adopt “creative accounting strategies” to avoid the tax, and could actually do economic damage to the state.

According to the institute, “a wealth asset tax also could encourage high net worth individuals to move their assets out of Hawaii to states that don’t have such a tax, which in turn would reduce business investment in Hawaii and curb job growth.”

The Senate Judiciary Committee approved the bill Thursday with only Republican Sen. Brenton Awa voting no.

“I’m not trying to raise taxes for anybody,” Awa said, adding that he did not have enough information on the proposal to vote in favor of it.

The measure now goes to the Senate Ways and Means Committee.

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