The Democratic leadership at the Hawaiʻi Legislature is still on an urgent hunt for money, but the state Senate is rejecting a half-dozen tax increase proposals that were awaiting action at the Capitol last month.

The House in March had approved a stack of proposals to increase taxes on everything from car sales to concert tickets, but almost all of those bills died in recent weeks without a hearing in the Senate.

The one tax increase both the House and Senate appear to still be seriously considering is a bill to boost the state conveyance tax, an idea supporters expect could raise as much as $170 million a year.

The catalyst for the money scramble this year is Gov. Josh Green’s proposal to suspend a series of income tax cuts that were supposed to roll out over the next five years.

Green and lawmakers approved those tax cuts in 2024, but the governor publicly warned last fall that the tax cuts had to be put on hold because the state faced a budget shortfall caused by cuts in federal aid, including federal funding for food aid and health care for the poor.

Now lawmakers are searching for alternatives to Green’s proposal to suspend the entire package of tax cuts. They worry that working families in Hawaiʻi are under financial pressure from factors such as escalating housing costs and inflation.

The House Finance Committee last month floated a plan to continue the tax cuts for most lower- and middle income families while pausing them for higher-income taxpayers.

Senate Ways and Means Committee Chair Donovan Dela Cruz offered his own plan to preserve the bulk of the tax cuts, one he said would continue the promised tax relief for households earning less than $350,000 for joint filers, $262,500 for head of household filers and $175,000 for individual filers.

Not Quite Enough

Will Kane, senior advisor to the governor, warned the House Finance Committee Tuesday that Dela Cruz’s proposal in Senate Bill 3125 “while well-intentioned, I think, doesn’t quite get us where we need to get to.”

“I think we still need to take a harder look at this,” Kane said, “and think about where we’re going to be in the next two years.”

House Finance Committee Chair Chris Todd praised the Senate plan, however, saying it has “a ton of value.” He expects House and Senate lawmakers will be able to reach a compromise in the final weeks of the session.

“I think there’s enough there that we can figure it out,” Todd said, “and we’ll find a balance that I think can keep much more of the income tax plan in place, particularly for pretty much 80%, 90%, 95% of people.”

However, Todd said the new budget proposed by President Donald Trump’s administration would impose cuts to federal funding for Hawaiʻi that have not yet been factored into the Legislature’s budget deliberations. He also noted the war in Iran caused a 50% increase in the price of oil, and the March storms in Hawaiʻi caused about $1 billion in flood damage.

“So there’s a lot on the table, and it’s evolving month to month,” he said, “so there’s some concern there.”

Limiting The Options

The House had generated a sizable batch of proposed tax increases that might have raised money to help with the state’s financial troubles, almost all of which quietly died in Senate committees in recent weeks.

One was House Bill 1850, which would have increased the state capital gains tax on profits from the sale of assets such as real estate, stocks or bonds. That tax is is generally levied on well-to-do taxpayers.

HB 1850 would have bumped the maximum capital gains tax on individuals from 7.25% to 9%, and boosted the top tax rate for corporations from 4% to 5%. Supporters of the bill estimated it would raise $44 million or more a year for the state.

The measure was easily approved in a 41-8 vote in the House on March 10, then never got a hearing in the Senate Ways and Means Committee.

Another tax proposal that quietly died in the Senate was House Bill 1991, which would have restructured and significantly increased the state liquor tax. It was expected to net an extra $30 million a year for the state, and supporters pointed out the last time the state increased its liquor tax was in 1998.

That bill was opposed by business groups and craft brewers from across the state, with critics arguing the increase would hurt small businesses at a time when local companies are struggling with high operating costs. It passed in the House in a 42-7 vote last month, then was referred to three Senate committees that never gave it a hearing.

Yet another tax measure that failed to advance in the Senate was House Bill 2147, which would have asked voters to amend the state constitution to authorize a surcharge on residential investment properties to help finance Hawaiʻi’s public education system.

Currently the Hawaiʻi constitution allows only the counties to levy property taxes, but HB 2147 would have asked the voters to allow the state Legislature to impose the surcharge. It was supported by the Hawaiʻi State Teachers Association and the Education Caucus of the Hawaiʻi Democratic Party as a way to help address “chronic underfunding” of the state’s public education system.

The House approved that proposal in a 40-7 vote last month, but senators again declined to hold a hearing on the bill.

Senators also nixed a bill to impose a $1-per-ticket surcharge for some commercial performing arts events. House Bill 2604 would have imposed the fee on public, commercial events where the ticket price is $35 or more, with the proceeds to be used to help finance the performing arts.

The House approved it 48-2 on March 10, then the Senate committees on Economic Development and Tourism and Water, Land, Culture and the Arts deferred the measure after a hearing, effectively shelving it for the year.

The Senate rejected a proposed new levy on sales of many gasoline- and diesel-powered vehicles that was designed to finance consumer rebates to encourage people to buy electric vehicles. The House voted 45-5 for the car tax in House Bill 2030, but the Senate Transportation Committee promptly killed that measure on March 24.

Boost The Conveyance Tax?

One tax proposal that seems to interest both the House and Senate is a plan to restructure the state conveyance tax on real estate sales, and boost the tax on properties that sell for more than $2.1 million.

The House Finance Committee approved a new draft of Senate Bill 3028 on April 2 that Todd said would keep the conveyance tax either flat or result in a tax reduction for 91% of sales. The tax would begin to increase on sales of about $2.3 million for owner-occupants, and sales of $2.1 million for investment properties.

The new rate structure would mean the increase would be “relatively not noticeable in that price range until you get into higher thresholds,” Todd said.

According to Housing Commitee Chair Luke Evslin the original House conveyance tax proposal would have generated about $170 million a year for the state, but Todd said the new House proposal would bring in about $20 million a year less than that.

The original proposal would commit money from the tax increase to the Department of Hawaiian Home Lands and to development of infrastructure for transit-oriented development and for development of rental housing.

Earlier in the session the Senate approved a similar proposal that would commit money from the conveyance tax increase to finance infrastructure for transit-oriented development, and to the Special Land and Development Fund to fund land acquisition for the Statewide Trail and Access Program.