HB1408

SECTION 1. The purpose of this Act, to be known as the "Taxpayer Protection Act of 2007," is to require the director of taxation to adjust the standard deduction, income tax brackets, and personal exemption for inflation. Inflation erodes the value of these amounts and distorts the fiscal equity among taxpayers in Hawaii. In a state with one of the highest costs of living in the nation, it is vital that the legislature recognize this disparity caused by stagnant changes in Hawaii's tax law that results in a windfall to the government at the expense of taxpayers earning additional income only to maintain the value of the dollar.

Inflation-induced increases in individual income tax revenues result in annual collections that exceed the amounts anticipated by legislative actions establishing rates, exemptions, deductions, and other features of the Hawaii individual income tax. Furthermore, the income tax laws of Hawaii, in combination with economic inflation, have caused inequitable treatment of the taxpayers because the application of inflexible, statutorily prescribed rates of tax, standard deduction, and personal exemption to increasing personal incomes has resulted in increasing the taxpayer's tax liability while the taxpayer's purchasing power has remained the same or, in some instances decreased.

The Report of the 2005-2007 tax review commission recommended that "[f]or Hawaii's Individual Income Tax, the standard deduction, the personal exemption and the tax brackets should be indexed for inflation." Past tax review commissions have recommended increasing the standard deduction and the personal exemption, and widening the tax brackets, to adjust for inflation. These adjustments do not contemporaneously address inflation. Indexing legislation such as this, however, timely and contemporaneously addresses this issue. The 2005-2007 tax review commission noted that without indexing, average income tax rates will rise as a result of inflation and will tend to rise more than inflation.

SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§235- Annual adjustments for inflation. (a) For taxable years beginning after December 31, 2006, the director of taxation shall, by official pronouncement, multiply the cost-of-living adjustment for the calendar year by the dollar amounts contained in the following sections of this chapter:

(1) The standard deduction amounts provided in section 235-2.4(a);

(2) The minimum and maximum taxable income rate bracket dollar amounts provided in sections 235-51(a),(b), and (c); provided that the rate applicable to each income bracket may not be changed; and

(3) Every personal exemption multiplier amount provided in section 235-54, except for subsection (b).

If any of the dollar amounts, as adjusted, are not multiples of $50, any increase must be rounded to the nearest $50. If the cost-of-living adjustment for any taxable year is 1.000 or less, no adjustment may be made for that taxable year.

(b) As used in this section:

"Consumer price index" means the average over a twelve-month period of the National Consumer Price Index, not seasonably adjusted, published monthly by the Bureau of Labor Statistics, United States Department of Labor, designated as the "National Consumer Price Index for All Urban Consumers-United States City Average."

"Cost-of-living adjustment" means the consumer price index for the twelve-month period ending June 30 of the preceding calendar year divided by the consumer price index for the twelve-month period ending June 30, 2005."

SECTION 3. New statutory material is underscored.

SECTION 4. This Act shall take effect upon its approval and shall apply to taxable years beginning after December 31, 2006.

INTRODUCED BY:

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BY REQUEST

HOUSE OF REPRESENTATIVES	H.B. NO.	1408
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII