Lawmakers give final approval to a ‘historic’ income tax cut in long day of voting

House Finance Committee Chairman Kyle Yamashita smiled widely during floor debate as he described the income tax relief offered up in House Bill 2404, which he boasts is the largest tax cut in state history.

House Republican Gene Ward called the measure “historic.” But House Democratic Majority Whip Rep. Amy Perruso warned the tax changes will disproportionately benefit wealthier taxpayers, which will exacerbate income inequality in Hawaiʻi.

Perruso cited an analysis by the Institute on Taxation and Economic Policy that cautions that by 2025, the state will forgo $656 million in revenue under the bill. Perruso called it a “risky approach” because it reduces state tax collections without adopting more progressive tax strategies to replace the lost money.

The institute found that 42 percent of the benefits from the bill would accrue to the top 20 percent of earners, meaning people who earn more than $147,000 annually, she said.

“In stark contrast, those in the lowest 20 percent income bracket earning less than $27,200 will receive an average tax break of only $335,” Perruso said. “This discrepancy has a clear skew toward benefiting those who are already well off.”

“There are more targeted ways of designing tax policy so as to better support those who are struggling, our working families who are having to move to the continent to survive,” she said.

Lawmakers passed a significant but controversial bill to allow for denser residential development of urban lots. Senate Bill 3202 was authored by Sen. Stanley Chang, who has made affordable housing his singular issue.

As explained in a committee report for the bill, lawmakers say that the state’s housing crisis has reached a point where “existing methods are no longer sufficient to meet the increasing demands for affordable housing.” As a result, thousands of residents are leaving Hawaii every year and many families are living paycheck to paycheck—and the single biggest expense is housing.

SB3202 would require county zoning ordinances to allow for two or more additional dwelling units for each residentially zoned lot within an urban district. Landlord “covenants” or agreements in those same areas would be prohibited from placing limits or other restrictions on those units.

SB3202 would require county zoning ordinances to allow for two or more additional dwelling units for each residentially zoned lot within an urban district. Landlord “covenants” or agreements in those same areas would be prohibited from placing limits or other restrictions on those units.

SB3202 is backed by key state agencies such as the Office of Planning and Sustainable Development and the Hawaiʻi Housing Finance and Development Corporation. A range of county agencies and officials also like it, as do influential groups with their own agendas including the Council for Native Hawaiian Advancement, the Hawaiʻi Appleseed Center for Law & Economic Justice and the Building Industry Association of Hawaiʻi.

But some members of the Honolulu City Council don’t like SB3202. The same goes for some neighborhood board members in fully developed locations like Hawaiʻi Kai, Kailua and Mānoa on crowded Oʻahu. The fear in some corners is that the measure will actually make residential property more expensive, as developer Peter Savio argues.

The Senate was divided over SB3202, with nine of the 25 members voting against it and four others voting for it with reservations.