Executive Summary

The economy we have today in Hawaiʻi is one where a few families are able to build more wealth than anyone would ever need over the course of many lifetimes, while nearly half our population struggles for basic survival. Extreme concentrations of wealth, facilitated in part by passing down multimillion dollar estates, goes hand in hand with increasing income inequality.

Far from leading to any kind of “trickling down” of benefits from the wealthy to working families, history shows that tax policies favoring the rich hollow out the working class and diminish tax revenue that pays for public programs and services. The estate tax, levied when large sums of wealth are passed from one generation to the next, ensures a more equitable distribution of resources and opportunities for all. 

Introduced in the 2024 legislative session, House Bill 2653 would expand the amount of wealth that can be passed down tax-free, from the current thresholds of $11 million for married couples and $5.5 million for individuals to $27.22 million for married couples and $13.61 million for individuals. It would also entirely exempt the value of any “family-owned” business from the estate tax, no matter how much it is worth.

The wealthy have already received massive estate tax cuts provided by the 2017 Tax Cuts and Jobs Act. A couple’s $28 million estate that would have paid $6,753,800 in federal estate tax before 2017 would already only pay $260,000 today. That represents a nearly $6.5 million tax cut on the federal side. Under HB2653, this estate would receive an additional tax cut of $2.71 million. In all, HB2653 would cost Hawaiʻi $30.2 million in the first year that it takes effect.

A progressive estate tax on multi-millionaires is a critical source of revenue to help fund our state’s budget, especially in times of crisis. Spending on recovery efforts for the Maui wildfires will cost at least $1 billion in FY 2025 alone, and the total cost could reach $5.5 billion or more. In addition, retroactive COVID-19 hazard pay for government workers will cost the state $150 million.

Beyond these needs, Hawaiʻi could dramatically improve the lives of its most vulnerable populations by investing in social programs, such as universal free school meals for children, eviction prevention and rent relief for the housing insecure, and a state-level Child Tax Credit targeted at Hawaiʻi’s families with children. 

The proponents of HB2653 are primarily Hawaiʻi business owners who have done extraordinarily well with their businesses. They may be many things—capable, well-intentioned, concerned about their employees and community, and generous in their donations—but they are not struggling businesses in need of a break. 

And though they are experts at building a business and turning a profit, they are not experts at structuring a thriving economy that works for everyone. Yet it is their assertion—that this bill is good for the economy and everyone in it—that is the primary driver and justification for it. No third party analysis has ever been publicly shared with the legislature. 

This brief explores Hawaiʻi’s estate tax, analyzes proposed changes to the tax being considered by the legislature this year, and makes recommendations for building a more fair and equitable tax code that allows Hawaiʻi to invest in its people. 

Expanding the estate tax exemption is the wrong choice for Hawaiʻi and would curb our ability to combat rising income inequality, while depriving our budget of much needed revenue. The legislature should instead pursue progressive revenue policies such as closing the loophole in Hawaiʻi’s capital gains tax and raising the tax on the sale of multi-million dollar mansions through the conveyance tax.