Honorable Robert Bunda

President of the Senate

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Ways and Means, to which was referred S.B. No. 1740 entitled:

begs leave to report as follows:

The purpose of this measure is to provide income tax relief to low and middle income families.

Specifically, this measure revises the income tax brackets by eliminating the two lowest tax brackets and inserting a new tax bracket before the top rate applies. As a result, taxable income for married individuals filing jointly and surviving spouses begins at $8,000 in taxable income, rather than $4,000. Taxable income for heads of household would begin at $6,000 in taxable income, rather than $3,000. These rates would apply to taxable years beginning after December 31, 2005.

Your Committee finds that the state income tax brackets are so compressed that people on public assistance pay income taxes and the highest rate for married taxpayers filing jointly begins when their taxable income reaches just over $80,000. The median income for a family of four in Hawaii, with both parents working, is approximately $70,000. As a result, if such a family earned only $900 more each month, they would be taxed in the same bracket as a family with an annual income of $900,000.

The Legislature further finds that comparisons with the average income in other states are meaningless when the consumer price index in Hawaii for housing, food, clothing, education, and transportation is factored in. Hawaii's income tax brackets need to reflect the fact that a $70,000 family income in Hawaii buys much less than a $70,000 family income in most other cities in the United States.

Your Committee has amended this bill by making it applicable to taxable years beginning after December 31, 2050, in order to promote further discussion of the issues raised. Your Committee also made technical, nonsubstantive changes to the bill for the purposes of consistency and style.

As affirmed by the record of votes of the members of your Committee on Ways and Means that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1740, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1740, S.D. 1, and be placed on the calendar for Third Reading.