Hawaii tax-cut dispute heads to conference talks

Summary

Hawaii lawmakers are weighing competing plans for scheduled tax cuts as the session nears its May 8 end.

Why this matters

The outcome will affect Hawaii residents’ taxes from 2027 through 2031 and the state’s effort to balance its long-term financial plan. Lawmakers’ final compromise will help determine how much revenue the state keeps as it prepares for expected federal funding cuts.

Hawaii lawmakers are expected to decide in the final weeks of the legislative session whether to keep, scale back, or repeal scheduled state income tax cuts from 2027 through 2031.

Gov. Josh Green proposed in January repealing all remaining annual cuts to preserve revenue he said was needed to offset federal cutbacks over several years. His administration said the plan would preserve about $1.8 billion in state revenue and help address nearly $3 billion in anticipated losses tied to recent federal actions.

The issue now centers on Senate Bill 3125 after House Bill 2306 stalled when it missed a Senate deadline last week.

The Senate Ways and Means Committee amended Senate Bill 3125 on March 5 to keep standard deduction increases in 2028 and 2030 for all taxpayers, while preserving tax bracket reductions in 2027, 2029, and 2031 for everyone except high-income filers. The proposal also would repeal seven commercial tax credits, including credits tied to renewable energy, high technology, and ship repair.

On April 7, the House Finance Committee replaced the bill with a version closer to its earlier House proposal. That draft kept the standard deduction increases in 2028 and 2030, repealed the tax bracket reductions in 2027, 2029, and 2031 for all taxpayers, and added 1 percentage point to the tax rate on an upper income tier for taxpayers in the state’s three highest brackets starting in 2027.

House Finance Chair Chris Todd said he expected a compromise in conference committee.

Green administration officials opposed proposals that did not fully repeal the remaining cuts. Budget and Finance Director Seth Colby said Green’s plan was designed to provide about $600 million by fiscal year 2029-30 to balance the state’s required six-year financial plan. Without more revenue, he said, balancing the plan through spending cuts “would be very painful.”

The governor’s proposal also would extend an elevated earned income tax credit and a food/excise tax credit to 2032 from 2027, and triple the child and dependent care tax credit. The House next is expected to vote on Senate Bill 3125, setting up House-Senate negotiations before the session ends May 8.

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