More taxes on the rich – but guess what, you’re rich

On Jan. 12, Governor Ige’s Chief of Staff and former Director of Taxation Linda Chu Takayama told the House Finance Committee a little more about the revenue-enhancement measures (tax hikes) that the administration is going to propose.

Takayama mentioned a “wealth tax.” But we aren’t sure what that means.

In some states, “wealth tax” means a tax on net worth. If you add up the values of your house, car, stocks and bonds, artwork, and so forth, and subtract your debts, that’s the amount you pay tax on.

That type of wealth tax would be a nightmare to administer here. Our Department of Taxation used to have people who could value real property, and that is because it administered a state real-property tax. But then we had a Constitutional Convention in 1978, followed by a general election, which voted to transfer the power and authority to tax real property exclusively to the counties. And we never had a tax on personal property (such as the stocks and bonds, art, cars, and so on). Acquiring the expertise to administer a tax like that would be no easy feat here. The real rub, however, would be on the taxpayer side. It’s already a problem getting people to value real property when you need it, such as when you want to sell the property or borrow against it. But getting the value determined each year, and not only for real property but also cars, boats, art and furniture? Auwe!

A more probable scenario is that the administration is considering a hike in the personal income tax.

Currently, our state imposes income tax at 8.25% on a single person’s taxable income between $48,000 and $150,000. A 9% bracket then applies to taxable income up to $175,000. A 10% bracket then applies to taxable income up to $200,000. Tax is imposed at 11% after that.

The thresholds are higher, of course, for a married couple or for people who that qualify as heads of household.

Hawai‘i now has the second highest top marginal rate in the United States. The top rate belongs to California. For now.

One big difference, however, is that the California top rate doesn’t kick in until taxable income exceeds $1 million (the final 1% is called a “mental health services tax”). Their 9.3% bracket applies to those with incomes between $58,635 and $299,508. When California’s 10.3% bracket kicks in, we are already well into our 11% maximum rate bracket.

Meaning that when our Hawai‘i legislators say, “Tax the rich,” they are much more likely to be talking about you and me as “rich,” not just folks living in Kahala Avenue mansions. And, realistically speaking, if our lawmakers are looking to taxpayers to plug a $1.4 billion per year budget hole, do we even have enough of the Kahala Avenue types to make a dent in the problem? Suppose that the top 1% of our population (1.4 million and falling) pulls down taxable income of $1 million on average. Tacking on two percentage points to their top rate would yield 14,000 taxpayers times $20,000 in additional tax, or $280 million. That’s a lot of money but not close to $1.4 billion.

This year, all details must be revealed to the public on Jan. 25, the day of Gov. Ige’s State of the State speech. At that time, we will know for sure what the administration is proposing. But there is much to worry about before then when the administration and other lawmakers talk about an income-tax increase. In the most-probable scenario, there is going to be good news and bad news. The good news is that they are only going to tax the rich. The bad news is that you’re rich.

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Tom Yamachika is president of the Tax Foundation of Hawai‘i.

4 Comments
  1. MisterM January 24, 2021 6:11 am Reply

    Gotta love this guy. Always worried about the rich, ’cause paying ONE percent more will crush their dreams and ruin the economy. Yet, curiously, the rich continie to M richer and the poor get poorer.


    1. Dt January 29, 2021 8:09 pm Reply

      You have to love the people that pipe in with their opinions but contribute no ideas or money to solving the issues. So quick with the tongue when their wallet is buried because they are retired and don’t contribute to the system.


  2. Randy Kansas January 24, 2021 7:40 am Reply

    The state of Hawaii will not be able to tax its way to prosperity…..Simple math;
    Repeating the same mistake over and over, does not produce a different result;


  3. nobody January 24, 2021 8:04 am Reply

    Many long time local people with family lands will find they need to sell to pay the taxes.

    Don’t worry, selling will be easy as we have so many people wanting to move here.

    I doubt our elected officials have the vision to see how this works. We’ll see.


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