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Sunday, May 12, 2024
The Green Affordability Plan Passes
By Tom Yamachika @ 6:00 AM :: 585 Views :: Taxes

The Green Affordability Plan Passes

by Tom Yamachika, President, Tax Foundation Hawaii

One of the survivors of the 2024 legislative session has been House Bill 2404, which has been the primary vehicle for Governor Green to advance his so-called “Green Affordability Plan.”

It passed the Legislature in a form somewhat different from that in which it was introduced, but it is still significant tax reform which, we think, has been long overdue.

To give you an idea what this bill does, we at the Tax Foundation of Hawaii have prepared some charts comparing tax under current law with tax under the new tax bracket schedules. These charts assume two married taxpayers with two kids, and only the standard deduction. (People with lots of deductible expenses, such as those with a mortgage, might fare better.) We calculate tax liability for those with gross incomes from $10,000 to $750,000, in increments of $10,000.

Also, these charts are presented with gross income on a multiplier scale rather than a linear one, so that moving from one upright gridline on the chart to the next one represents an increase by a factor of four. For example, if you start at the left edge of the chart, the gross income represented is $10,000. The next upright gray line is at $40,000, and the one after that is $160,000. This allows us to see more detail of the lower income brackets, where the ALICE (Asset Limited, Income Constrained, Employed) families are.

At the very low end of the income spectrum, the new brackets reduce the income tax by 100%. We think that’s a good thing because the tax system shouldn’t be taxing poor people further into poverty.

As the income gets higher, the percentage reduction in the tax decreases. At the higher end of the income spectrum, the tax decreases by about 25%. Because the tax schedules phase in over time, the amount of tax decrease will move slightly higher from 2025 to 2027 to 2029.

If, as we expect, this bill is signed into law, it will go into effect this year. (But the only change this year is a boost to the standard deduction. The first set of new brackets kicks in at the start of 2025.) Most of us ordinary people should take a good hard look at our wage withholding. It may be worth a few minutes wrestling with a spreadsheet to figure out if your withholding is too much.

For most people, the objective should be to maximize take-home pay and not get a huge refund at the end of tax season. This is because any refund, huge or otherwise, was your money that you basically loaned to the government interest-free. If a change to your withholding is appropriate, fill out a new HW-4 form and give it to your employer.

With any luck, this tax reform will help restart our economic engine and help make Hawaii a beautiful place to live once again.

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