State lawmakers are beginning to tweak Gov. Josh Green’s tax break proposal.
Known as the Green Affordability Plan, the proposal has been touted as the Governor’s way to lower the cost of living for residents by restricting the state's income tax brackets, increasing tax credits for families beginning next year and creating tax credits for teacher expenses.
Opponents of House Bill 1049 worry that the adjusted tax brackets may cause potential tax cliffs, which the Department of Taxation's Gary Suganuma said is being monitored.
Tax cliffs can occur when an increase in income causes a sudden rise in tax bills.
"The Department understands that portions of the bill contain tax cliffs due to the income steps created to determine eligibility for the tax credits. These tax cliffs may be addressed through a gradual phaseout mechanism, which the Department can work with the Committee in creating," Suganuma said in written testimony.
Education committee chair Rep. Justin Woodson of Maui said in a second draft of the bill that lawmakers would like to "overlay certain language that indexes per cost of living, adding a language that will better prevent fraud."
The estimated adjustments would result in a net revenue loss of about $312.5 million, according to the bill.
The original proposal sought to give a nonrefundable $500 income tax credit for teachers employed by the Department of Education, a charter school or a private school for teacher supplies. Lawmakers on Tuesday added preschool teachers into the mix.
Rep. Daniel Holt of Oʻahu, who is the chair of the House Economic Development Committee, said this administration bill is being favored over other tax credit proposals introduced at the state Legislature this session.
"Something that all of us talk about is lowering the cost of living for our constituents, and I think this is a measure that accomplishes that in a very creative way," Holt said. "As you can see, we have a lot of tax credit, straight tax credits on the books, sorry for all the members who I didn't hear your tax credit bills, but it's because we have this approach this year."
Suganuma, in written testimony, also addressed the number of tax-related bills this session.
"The Department further notes, however, that due to the number of bills with tax law changes that have been introduced this year, the Department may not have the resources to implement all measures passed this session in time for tax year 2023," Suganuma said.
HB 1049 passed out of a joint session of the House Committees on Education and Economic Development on Tuesday.
"I would like to request that the Committee on Finance, if they so choose to take up the proposal look at the cost impact and the subject matter expertise so that they can consider whether or not to move it forward," Woodson said.
