Gov. Josh Green signed into law “the largest income tax cut in state history” Monday with an eye toward helping lower-income families and improving the availability of medical services.
The two bills Green signed were House Bill 2404, which will introduce sweeping changes to the state tax code and lower tax rates for all income brackets, and Senate Bill 1035, which will exempt certain medical services from the general excise tax.
“This is the transformative moment we’ve been waiting for,” Green said at a bill signing ceremony Monday, explaining the two bills are part of the second phase of his Green Affordability Plan — his administration’s proposal to reduce the high cost of living for working families.
Beginning this tax year, HB 2404 will eliminate the lowest tax brackets and reduce the tax rates for all brackets during even-numbered years. In odd-numbered years, the standard deduction will be increased.
Over a seven-year period, the new tax code will reduce income taxes paid by working families by 71%.
“We’ve seen an exodus of people who are living paycheck-to-paycheck … going to the mainland because they just can’t afford rent,” Green said. “Our cost of living has been hurting us, it’s hurting our ohana, it hurts our friends, and it hurts community well-being … 44% of all of our state are (Asset Limited, Income Constrained and Employed) families, and with the recent inflationary pressures on people, it’s been even more difficult. So, this had to happen, we had to cut taxes for our people.”
Green said under the tax scheme, Hawaii will go from one of the highest-tax states in the country to one of the lowest-tax. The standard deduction for a single taxpayer will increase from $2,200 to $4,400 for taxable years after 2023, will nearly double to $8,000 in 2025, and by 2031 will be $12,000.
Green said the tax reforms are specifically aimed at reducing the tax burden for people at the lower end of the income scale. According to a chart Green presented Monday, the take-home pay for a person making $75,000 a year will increase by $2,300 by 2031. For a married couple jointly making $150,000 with two kids, take-home pay will increase by $4,700.
By 2031, Green said, roughly 40% of Hawaii taxpayers will pay zero state income tax, a total tax reduction of $5.6 billion.
“People are going to ask, ‘How can we afford this?’” Green said. “The fundamentals are this: Individuals who are working paycheck-to-paycheck will spend every single dollar on local businesses, on rent, on their cars, on health care needs. They will spend it here. … Individuals who make many millions of dollars, God bless them, we’re excited for them, but they already have enough resources to maintain their needs.”
Meanwhile, SB 1035 will exempt hospitals and other medical facilities and individual medical or dental practitioners from the general excise tax levied on services that are covered by Medicare, Medicaid or TRICARE. Through this, he said, it will become more economically viable for providers to work in Hawaii, which ideally will alleviate the state’s physical shortage.
“This law is a significant step toward relieving financial burdens and stimulating economic growth in our health care sector,” Green said. “As a former ER physician working in a rural community, I can confidently say that this legislation will be especially beneficial for rural health care providers and patients.”
“It’s not appropriate for governments to tax these services for people who need them to survive,” said Big Island resident Scott Grosskreutz, founder of the Hawaii Provider Shortage Crisis Task Force, which helped develop the bill.
Grosskreutz said that in 2023, a University of Hawaii study found that the Big Island had 41% fewer physicians than would be adequate for a county of its population. Roughly 35% of the island’s population live within areas designated by the U.S. Department of Health as Health Professional Shortage Areas.
While Grosskreutz said the bill will not take effect until 2026, he said the mere knowledge that the tax exemption is coming should allow for more physicians to hold out until relief arrives.
Hilo Sen. Lorraine Inouye introduced the bill last year, and worked hard to resurrect the measure this session, Grosskreutz said, with the support of Puna Rep. Joy San Buenaventura and 155 health care professionals.
“By exempting health care and dental services from the GET … (the bill) incentivizes the recruitment and retention of health care practitioners, fostering economic growth and job creation. And most importantly, SB 1035 is about equity and access to health care.”
“We’re just blessed, the Big Island is, to have lawmakers engaged in our health care needs,” Grosskreutz said.
A tax calculator to determine individual and family take-home pay changes under HB 2404 can be downloaded at tinyurl.com/yt4t7ewd.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.