Introduction

To build a better future for our keiki, our state needs to be able to invest resources into our schools, our hospitals and our parks; into the development of truly affordable housing; into climate change preparedness; and into programs to help working families handle the high cost of living, and drive the local economy. 

Hawaiʻi’s tax system is a powerful tool policymakers can use to achieve the budget necessary to fund our collective future. But right now, some parts of our tax code actually stand in the way of that vision by perpetuating income and wealth inequality, reinforcing racial barriers to economic opportunity for people of color, and sapping the state of the revenue it needs to serve the people. 

One change that would increase tax fairness while generating significant revenue would be to eliminate the preferential tax treatment of profits from the sale of capital assets—income that goes almost exclusively to the wealthiest 5 percent of households. By taxing these long-term capital gains at the same rate as regular income from work, Hawaiʻi can make its tax code more fair while funding critical investments in education, housing, healthcare, and support for working families.

Income from wealth should be taxed like income from work. To maximize the economic impact of the additional revenue gained from closing the capital gains loophole, the state should consider reinvesting it into working families—especially those with children—in the form of targeted tax relief, such as through a state child tax credit.