Bill exempting jobless benefits from state taxes hits a snag

Gary Hooser, a former state senator from Kauaʻi who has played a leading role in Hawaiʻi’s progressive movement, said it was premature to scuttle Senate Bill 614 and that workers deserved the extra relief given the state’s handling of unemployment benefits.

The U.S. Treasury Department didn’t respond to a request to clarify the federal relief rules relating to tax cuts. But a White House official told the Washington Post earlier this month that the law doesn’t say states can’t cut taxes at all, but rather “instructs them not to use that money to offset net revenues lost if the state chooses to cut taxes.”

“So if a state does cut taxes without replacing that revenue in some other way, then the state must pay back to the federal government pandemic relief funds up to the amount of the lost revenue,” the official said.

Hawaiʻi’s lawmakers have introduced an array of measures to boost state revenues including increases to the capital gains tax, corporate taxes and taxes on high-end real estate sales, along with a proposal that would increase the income tax for the state’s top earners. But House leaders say many of these are failing and it would still be hard to cover the $190 million projected revenue shortfall created by exempting unemployment benefits from the state income tax.