Residents of Hawaii, a state which has long had one of the highest tax burdens in the United States, are poised to receive some desperately needed relief as the Aloha State is about to enact some long-awaited reforms aimed at reducing the taxes owed by working families.
The deep-blue bastion has rarely experienced pushback against tax hikes, which makes last month’s move by Hawaiian legislators all the more surprising. They unanimously approved a bill that contains the biggest tax cut in the island state’s history.
The proposal is expected to be signed without objection by the state’s governor, Josh Green, as it was part of a package he introduced last year called the Green Affordability Plan.
Under the new rules, a family with the state’s medium income of $90,010 will see its taxes fall nearly 70 percent after the last of the provisions take effect in 2031. Low income joint filers won’t be left out, either—they once paid some of the steepest state income tax rates in the nation for their bracket, and they will now pay the lowest rate out of the nation’s 42 jurisdictions which impose income taxes (41 states, plus the District of Colombia).
On the whole, taxpayers in Hawaii will net a savings of nearly $5 billion over the next decade as the state moves from the second-highest income tax burden to the third-lowest.
Hawaii’s current tax system is highly complex, featuring twelve tax brackets ranging from $0 income in the lowest bracket to everything over $400,000 for the highest bracket of joint-filers. The new law will nearly quintuple the standard deduction from $4,400 to $24,000, and will gradually raise the income levels to which higher rates will apply. Thus, taxpayers who opt for the standard deduction will not be taxed on the first $24,000 of their income, while those earning more will pay lower rates all the way up the scale. It will also help taxpayers avoid being pushed into higher brackets because of inflation-related pay raises.
