H.B. 3, introduced Thursday by Rep. Jeanne Kapela, D-Naalehu, would make several tax changes, including increasing the personal income tax rate. The personal income tax for surviving spouses would be levied at 12% for taxable income between $450,000 and $500,000, and at 13% for all taxable income over $500,000. Under current law, an 11% tax rate is imposed on personal income over $400,000.
For heads of household, the tax should be levied at 12% for income between $350,000 and $400,000, and at 13% for income over $400,000, according to the bill. For unmarried individuals, the tax should be levied at 12% for income above $250,000, and at 13% for income above $300,000. Heads of household are currently taxed at 11% for income over $300,000, while individuals are currently taxed at 11% for income over $200,000.
The bill is intended to help the state recoup revenue lost by the state as a result of the pandemic.
"The Legislature additionally finds that it is necessary to generate revenue to allow the state to meet its strategic goals, avoid furloughs and layoffs for state workers, and prevent disruptions to essential government services," according to the bill.
The bill would also increase the tax on capital gains to a rate of 11% from 7.25%, increase the corporate income tax rate to 9.6% and establish a single corporate income tax rate for all corporations, including regulated investment companies and real estate investment trusts.
The bill would also temporarily repeal a wide range of general excise tax exemptions, including exemptions for the amounts deducted from gross income received by contractors and reimbursements received by federal cost-plus contractors for the costs of purchased materials, plant and equipment. The measure also provides for a conveyance tax increase for the sale of properties valued at $1 million or greater.
The bill, if passed, would take effect July 1. The personal income tax rate hike would apply to tax years beginning after Dec. 31, 2020, and the temporary repeal of certain exemptions and the conveyance tax increase would be repealed on June 30, 2023.
A Senate version of the bill is S.B. 56.
Representatives of Gov. David Ige, a Democrat, did not immediately respond to requests for comment Friday.
Representatives of Democratic and Republican leaders of the Hawaii Legislature did not immediately respond to requests for comment Friday.
--Editing by Joyce Laskowski.
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