A proposal by Gov. Josh Green to pause his previously scheduled tax cuts is still going forward.
In 2024, Green passed Act 46, touted as “the largest income tax cut in the state’s history,” making incremental increases each year to the standard tax deduction, building all the way from $4,400 to $24,000 by the end of 2030.
But in January, Green announced that, in the face of a $3 billion shortfall in the state budget, those cuts would be suspended. While the cuts that have already been made would remain in place, further cuts planned between 2027 and 2030 would no longer be put in place.
The bills introduced to implement those changes remain on track to pass, with House Bill 2306 and Senate Bill 3125 passing their sole committees in their respective chambers last week.
In testimony supporting the measures, Green has claimed that the truncated tax cuts will still return $5.4 billion to Hawai‘i families over the next five years, while still preserving $1.8 billion in the general fund over the same period.
However, the two bills have diverged somewhat, with the Senate Ways and Means Committee proposing a new version of SB3125 to retain some of the planned tax cuts, but only for the lower income brackets. For example, beginning in 2027, the measure proposes that anyone with taxable incomes lower than $350,000 per year can still receive their planned tax cuts, while those above that threshold would not.
Another previous version of the Senate bill seemingly attempted to reinstate the tax cuts at higher income brackets, but Green’s office was concerned that version would not offset the state’s budget shortfall.
The Senate version of the measure also includes a broad repeal of several different tax credits in 2029.
Those cut credits include:
• A renewable energy credit allowing taxpayers who have installed solar- or wind-powered energy systems to receive credits of up to $500,000, depending on specific factors.
• A capital goods excise tax credit from 1987 allowing businesses to have the general excise tax costs of new property purchases to be reimbursed.
• A “high technology business investment” credit, allowing “qualified high technology businesses” to receive credits of up to $700,000 for investments into said businesses.
• A renewable fuels tax credit offering up to $3.5 million for producers of fuels with lower carbon emission rates than fossil fuels.
• A technology infrastructure renovation credit, whereby businesses could be reimbursed for investments into infrastructure such as high-speed internet, improved ventilation and cooling systems, or facility security systems.
• A ship repair industry credit reimbursing up to 30% of a business’ expenses toward building drydocks in Pearl Harbor. However, this credit was slated to be terminated at the end of 2026 anyway.
On the other hand, the House measure substantially broadens a child care tax credit. Currently, taxpayers making more than $50,000 annually can only claim 15% of dependent care expenses, while people making less than $25,000 per year can claim up to 25% of expenses.
HB2306 would expand the credit, allowing people making up to $80,000 per year to claim 50% of expenses as a credit. It also adds further tiers for higher-income taxpayers, whereby people making $140,000, $150,000 and $160,000 could claim 15%, 10% and 5% of child care expenses, respectively.
The Senate bill includes a section where the child care credit could be amended, but with the specific values of those amendments unspecified.
Finance committees in the House and Senate discussed their respective bills last week. Testifiers at the House Finance Committee hearing last Tuesday spoke in droves in support of the proposal. Several University of Hawai‘i students expressed concerns that a shortfall in the state budget will have negative impacts for students and low-income residents.
“These people are being asked to accept cuts to essential services because there’s just not enough money,” said student Landon Love, with his words being echoed by dozens of other students.
But those students were outnumbered by droves of written testimony opposing the measures and urging lawmakers to retain the tax cuts.
“A pause is just a tax hike with a nicer name,” wrote Rich Walker, while several others called the bills “a bait and switch,” coming so soon after the cuts were announced.
Both bills have until Wednesday to cross over into the opposite chamber.
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