For years legislators have talked about the need to better support working families in the state. They’ve taken important steps in recent years, increasing the minimum wage and creating a working families tax credit.

Yet incomes still are not keeping pace with soaring housing prices and other costs, and families that have called Hawaii home for generations are being forced out.

This year, lawmakers had the opportunity to pass multiple proposals that could have made a difference: a state-level child tax credit; a modest rent relief fund to prevent evictions; and universal free school meals for children in public schools.

But lawmakers rejected each of these proposals. 

At the outset of the session, legislators were publicly fretting over the state budget and the financial impact of the Maui wildfires. Just weeks ago, legislators asked state department heads to prepare for the possibility of 10-15% cuts in spending on education and human services — cuts that would have been devastating for the well-being of Hawaii’s people. 

All the while they’ve been advancing Senate Bill 3289 and House Bill 2653, which would deliver a tax cut of up to $43 million for the top 0.2% wealthiest families in the state.

Gutting The Estate Tax

When a Hawaii couple passes away, if they pass along more than $11 million in assets to family and friends, the excess amount is subject to the Hawaii estate tax.

The estate tax is intended, in part, to help avoid extreme concentrations of wealth sustained across generations. This translates to disproportionate political influence and power, and undermines democratic processes, equality of opportunity and social mobility. 

Former U.S. Supreme Court Justice Louis Brandeis said it well: “We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both.” 

Proponents of the bill suggest cutting the estate tax will actually result in payment of more taxes because estate taxes not paid can be reinvested into family businesses, creating more jobs and more revenue that will be subject to tax. That concept has not worked.

The 400 wealthiest families in the U.S. paid an effective tax rate of 56% in 1960. By 2018, it was down to only 23% — lower than the rate paid by the bottom half of U.S. households. In 1989, the top 10% of Americans held 61% of the nation’s wealth.

By 2021 they had 70% of it. In contrast, the bottom 50% of families owned just 2.5% of the wealth. The approach of cutting taxes on the wealthy has hollowed out the middle class, creating a few billionaires and far too many families sleeping on sidewalks.

SB 3289 has already passed the Senate with no votes in opposition. It was passed out of the House Finance committee on Wednesday, and is just a few steps from the finish line at the legislature. 

HB 2653, on the other hand, actually died without being scheduled in the Senate Ways & Means committee, only to be resurrected as a zombie bill to be heard Friday — a feat that required waving Senate rules and amending an already-posted hearing notice to jam it in with only 24-hours notice.

Should the tax cut become law, it will speak volumes about our state’s priorities. For less than $43 million, lawmakers could have:

• ensured every public school student has access to breakfast and lunch ($23 million);
• prevented 2,500 evictions each year with a rent relief and mediation program ($13 million); or
• provided a $325 per child tax credit for 176,000 children in low-income families, ($42 million).

They could even have picked all of the above — and more — had the Legislature advanced a proposal to tax capital gains income at the same rates as income earned from work: House Bill 1660 would have generated $135 million in revenue, 97% of which would have come from the top 5% richest households (earning $270,000 and above), and 85% of which would have come from the top 1%.

The Legislature also rejected an increase on the sales tax on multi-million dollar mansions that would have generated close to $90 million a year, much of which could have directly financed the development of new affordable housing.

If we truly want a thriving economy, where Hawaii’s working families are able to make ends meet, we need to align our policy with our stated values. We missed opportunities to gain ground this year. We cannot afford to walk backwards with estate tax cuts for the wealthy few.