Capital gains tax increase and a new carbon tax may not make the cut
For example, the House is scheduled to vote on House Bill 1507 this week, which would increase the maximum state capital gains tax rate from 7.25 percent to 11 percent. That measure would also make permanent the earned income tax credit for lower income families, and make the credit refundable to provide an extra financial boost to those families.
Supporters say the crux of the issue is fairness. Currently wage earners can be taxed at a rate of up to 11 percent, while capital gains are taxed at no more than 7.25 percent. According to the Hawaiʻi Alliance for Progressive Action, “the capital gains tax loophole is a tax break for the richest and most privileged people in Hawaiʻi.”
The state tax department calculates that boosting the top capital gains tax rate would allow the state to collect an extra $100 million a year or more even after deducting the cost of providing a more generous earned income tax credit.
But House Finance Chairwoman Sylvia Luke said she doesn’t particularly like the tactic of bundling the EITC together with the capital gains tax increase “only because I think there’s a commitment to make EITC permanent and refundable, and capital gains is a separate item.”
Revamping the EITC is part of lawmakers’ drive this year to provide help to working families, including increasing the minimum wage. Lawmakers are committed to overhauling the earned income credit to make it permanent and more generous whether the capital gains tax increase passes or not, she said.
In fact, the House is expected to vote this week on a separate bill that combines the earned income tax credit proposal with an increase in the state minimum wage. That measure, House Bill 2510, would increase the minimum wage to $18 per hour by 2028.
In the Senate, Ways and Means Chairman Donovan Dela Cruz says the capital gains tax proposal “might be hard, because we have lots of revenues. It may be difficult.”
“There are lots of people who want equity and fairness, but at the same time we do have lots of revenues,” he said.