Forbes: Hawaii Adopts Obama Style Tax Hike On Rich
by Janet Novack, Taxing Matters
Despite all the talk about curbing tax breaks for corporate jets and big oil companies like Exxon Mobil and Chevron, the largest dollars in President Barack Obama’s proposed deficit-reducing tax hikes ($293 billion over ten years) come from limiting the value of itemized tax deductions claimed by the better off.
While it’s gotten little notice on the mainland, Obama’s birth state has just raised its taxes on the well off in much the same way. Last month, Democratic Governor Neil Abercrombie signed S.B. 570, making Hawaii the first state in the nation to place a dollar cap on the itemized deductions that better off taxpayers can claim….
For 2011 through 2015, singles in Hawaii with adjusted gross income above $100,000 will be allowed to claim a maximum of $25,000 in deductions for mortgage interest, charitable giving, medical expenses and the like, while couples with AGI above $200,000 will be allowed no more than $50,000. Moreover, the new law requires these folks to figure their tax bills another way, applying a federal partial phaseout of itemized deductions for the better off (U.S. Tax Code Section 68) that has itself been at least temporarily phased out by the George W. Bush tax cuts. High income Hawaii residents must then use whichever restriction produces the higher tax bill.
In addition, Hawaii is one of a handful of states that has allowed residents to deduct from their state taxable income the state income and sales taxes they pay. But the new law disallows that oddball deduction entirely for the same higher income folks and for the same five years. The net effect of the two provisions, according to an analysis by the state’s Department of Taxation is more than $40 million a year extra being extracted from the wealthiest 26,000 Hawaii households. Note that Hawaii already has the highest state income tax rate in the nation—a hefty 11% on taxable income above $400,000 for a couple or $200,000 on a single.