Trickle-down estate tax break bills are bad policy for Hawaiʻi

Hawaiʻi’s legislature currently is considering House Bill (HB) 2652 and HB2653, a pair of bills that would allow the wealthy to inherit a greater amount of an estate before paying taxes.

Businesses have argued that these bills are needed for local businesses to survive, but there is no evidence of this being the case. On the contrary, both of these bills would give millions of dollars in unnecessary tax relief to Hawaiʻi’s wealthiest residents, leaving a substantial hole in the state’s budget. This shortfall would inevitably draw funds away from priorities that would help our working families in need.

HB2652 looks to expand the marital deduction for estates—which allows spouses to inherit estates without paying any taxes—to include immediate family members. This would effectively eliminate the estate tax altogether, since it would allow estates to be passed down tax-free to an individual’s children.

HB2653 has two aims: to link Hawaiʻi’s estate tax exemption to the federal estate tax exemption, and to deduct the value of a family-owned business from the estate. Although the federal estate tax exemption level is $13.61 million for individuals, it is set to revert to $7 million after 2025. Hawaiʻi’s estate tax threshold, the amount at which estates can be taxed, is already high at $5.49 million. Even at $7 million, this bill would make the estate tax exemption significantly higher than it currently is.

In effect, the proposed deduction for family-owned businesses would exclude them from the estate tax altogether. This would be a generous giveaway to millionaire business owners and their heirs, not the mom-and-pop businesses that are actually in danger of bankruptcy.

Hawaiʻi’s current estate tax threshold ($5.49 million) already ensures that only the wealthiest residents are subject to the estate tax, shielding middle-income residents who may pass on homes in the $1 million to $2 million range—along with a lower amount of other assets—to the executors of their estate.

The State of Hawaiʻi is scrambling to fund its budget in 2024. HB2652 alone would reduce the state’s tax revenue by $43.3 million per year.

Estate taxes serve as a means to promote a more equitable distribution of wealth. By increasing the exemption threshold, HB2653 would disproportionately benefit multimillionaires, widening the wealth gap even more.

The proposed changes could also have unintended economic consequences. A lower estate tax threshold might encourage wealth hoarding, which could stifle economic growth and innovation.

In light of these issues, it’s clear that HB2652 and HB2653 would make Hawaiʻi’s tax system more regressive, despite unsubstantiated claims that the benefits given to millionaires would “trickle down” to working families. After decades of evidence, we know “trickle-down” economics is a smokescreen to aid the wealthy in creating preferential tax policies such as these two bills.

Policies that are actually proven to lift up working families, such as the Child Tax Credit and Universal Free School Meals, require millions of dollars in funding to be effective. Estate tax giveaways to the wealthy should not come at the expense of these crucial investments.