House to decide on tax break proposal
By Gordon Y.K. Pang
Advertiser Capitol Bureau
Gov. Linda Lingle's plan to help those who can least afford to pay taxes by raising the standard deduction on individual income taxes remains alive in this year's Legislature.
The House Finance Committee yesterday heard testimony on Senate Bill 1621 but deferred making a decision until tomorrow. The Senate-approved measure calls for increasing the standard deduction but provides no dollar figures — so if approved by the House, the amounts will likely be hashed out in conference committee with the Senate.
Lingle's original proposal, a major component of the new governor's tax relief plan, did not receive hearings by the money committees in either the House or Senate. It called for the standard deduction to increase steadily over three years to an amount that is about half of the standard deduction now given to federal income tax filers.
Tax Director Kurt Kawafuchi yesterday asked that legislators consider inserting the Lingle plan.
A married couple filing jointly would see their state tax deduction go from $1,900 to $3,000 in the upcoming 2004 tax year and to $4,200 by 2006 while a single person's exemption would go from $1,500 to $2,000 next year and to $2,500 by 2006. By comparison, the married couple filing jointly now gets a $7,850 federal deduction while a single person gets a $4,700 deduction.
The Department of Taxation estimates the savings on state taxes to a married couple with two dependents and an annual gross income of $56,950 would be $84 next year and $182 by the third year. A single person with an annual gross income of $41,290 would save $40 next year and $79 in 2006.
Kawafuchi said the plan would result in lost income to the state of $9.7 million next year, $15 million in 2005 and $19.8 million in 2006.
Kawafuchi told lawmakers that while volunteering over the weekend to help Leeward Coast residents do their taxes, he came across a man with a wife and young child who earned $2,887 in income last year and had to pay $5 in state income taxes. "And here's someone who doesn't even have enough money to barely live on," Kawafuchi said. "Five dollars to him would mean a lot."
He estimated about 18,000 taxpayers would no longer have to pay taxes, or even file an income tax return. An additional 44,000 would no longer have to itemize their deductions as well, he said. The secondary advantage, Kawafuchi said, is reducing the paperwork going through his agency.
There has not been an increase in the standard deduction in more than 10 years.
The proposal has been recommended by the Hawai'i Tax Review Commission. It was also backed by Lowell Kalapa, president of the nonprofit Tax Foundation of Hawai'i. "We have the third lowest threshold in the nation as far as beginning to pay income tax, and that's an honor I don't think we want to retain," he said.
Reach Gordon Y.K. Pang at gpang@honoluluadvertiser.com or at 525-8070.
