Capital gains are income that comes from selling a capital asset, such as stocks, bonds, art, antiques or real estate at a profit. Hawaiʻi currently taxes capital gains at a flat rate of 7.5 percent. That’s lower than the income tax rate on high level incomes. In Hawaiʻi, capital gains are exclusively enjoyed by wealthy families, making this effectively a tax break for the rich. We should tax capital gains at the same progressive rates as income from work.

The legislature is currently considering House Bill 1660 and Senate Bill 2325 to do just that.

Talking Points

1. In Hawaiʻi, the tax rate for long-term capital gains is 7.25 percent, or the taxpayer’s marginal income tax rate, whichever is lower. This maximum 7.25 percent rate is considerably less than the top marginal income tax rate of 11 percent imposed on high income taxpayers

2. A whopping 97 percent of capital gains in Hawaiʻi are earned by just the top 5 percent wealthiest residents in the state, and 85 percent of them are earned by just the top 1 percent. No one in the bottom 80 percent of earners receives capital gains income in Hawaiʻi. That means that this low capital gains tax rate is a tax break exclusively for the rich.

3. Preferential tax rates on capital gains benefit those who are already rich, a group that is mostly white in the United States. Accordingly, this tax policy also supports and perpetuates racial inequities in the distribution of wealth and the harm they continue to do to communities and people of color.

4. According to the Department of Taxation, taxing capital gains at the same rate as ordinary income could generate over $132 million in new revenue for the state during its first year of implementation. That amount could rise to an estimated $187 million within 6 years. That's revenue that the state desperately needs to fund critical programs to help working families afford the highest-in-the-nation cost of living here.