REDUCING THE COST OF LIVING - TAX RELIEF

The Lingle-Aiona Administration remains committed to reducing the cost of living for working families and low income residents.  Households are faced with rising electricity bills, water and sewer fees, gasoline prices, higher rents, and property taxes.  Families and singles are stretched to pay for groceries, medicines, and other necessities. 

The Governor and Lieutenant Governor are proposing a set of targeted tax reductions totaling $102 million over the next two years to provide immediate pocket-book relief for Hawaii’s most needy.

Ohana Tax Reduction Act of 2008

Many families today are faced with the dual challenge of raising children while taking care of aging parents.  It is important to recognize the sacrifices they are making and to give them tax relief that allows them to cope with the costs of dependent care and raising the next generation.

This bill would provide two forms of tax relief.  First, it would grant an additional exemption of $1,000 for each child in a household who is 18 years of age or younger, when the household income is $100,000 or less.  For families with incomes between $100,000 and $200,000, the per-child exemption would be $500.  The additional income could be used to cover school supplies, after school programs, and other costs of raising a child.

Second, this bill increases the tax credit that a family can claim for dependent care.  Dependent care includes care of a young child, an aging parent, or a disabled loved one.  The bill would increase the allowable tax credit for dependent care expenses from a maximum of $2,400 to $5,000 per dependent.  The credit amount is computed on a sliding scale of between 15 percent and 25 percent of the costs incurred, depending upon the taxpayer's adjusted gross income.

This bill would provide $25.9 million a year for families with responsibility for taking care of young children and older parents.  The measure would be retroactive to January 1, 2008 to allow families to receive the dependent care tax relief for this tax year and both the dependent care and additional exemptions in 2009.  It is estimated the Ohana Tax Reduction Act would benefit 494,600 taxpayers, about 43 percent of the total.

Retirement with Dignity Income Tax Relief Act of 2008

Many senior citizens live on limited incomes, making it difficult for them to adjust to higher living costs and inflation.  To recognize this, Hawaii does not impose income taxes on social security earnings for most seniors and also exempts public employee and private employer pension income.

However, private personal retirement accounts, such as IRAs, 401(k) plans, and annuities are taxed.  This means a senior who did not work for the government or a large corporation has to pay taxes on income that is exempt from taxation for other seniors.   Taxes should be fair and equitable—treating people in equal situations in the same way.

The Lingle-Aiona Administration is proposing legislation to treat all seniors 65 and older fairly and with dignity.  This measure would exempt from State income taxes the first $25,000 of income for single seniors or $50,000 for married couples.  The amount of the exemption would be reduced if the senior earns more than $25,000 per year and would phase out entirely at $75,000.  Government pensions and private pensions would not be affected by the phase out. 

This measure would ensure that $20.3 million more per year would stay with limited-income seniors, benefiting an estimated 80,000 of our older residents.  This measure would take effect immediately and apply to the current taxable year in order to allow those aged 65 and over to enjoy the tax relief immediately.

Constitutionally Mandated Tax Refund

The State Constitution recognizes the responsibility of government to return some of the State surplus funds when the State’s fund balance at the end of a fiscal year exceeds expenditures by 5% or more for two years in a row.  In recognition that the Lingle-Aiona Administration has exercised fiscal prudence, Hawaii’s taxpayers again qualify for a constitutionally required refund.   

The exact amount of the refund will need to be determined by the Legislature.  It is hoped that the Legislature will recognize that all of Hawaii’s 1,030,269 individuals qualify for the refund and should receive the refund as a check, rather than waiting until 2009 to claim the refund as a credit.

Cell Phone Surcharge Reduction

To help implement a statewide system that allowed emergency personnel to respond to calls for help from a cell phone, in 2004 a surcharge of 66 cents per month was placed on mobile phones purchased and used in Hawaii.  The E-911 system, as it is called, has been implemented in most urban areas and is being extended to more remote or rural areas so that the entire State will have coverage within a short period. 

The Lingle-Aiona administration is proud that the system has been effectively implemented in cooperation with mobile phone service providers working in Hawaii.  We are also proud that the costs of the system are less than originally projected. 

This means that the cost to cell phone users can be reduced from 66 cents per month to 43 cents per month.  This proposal implements the fee reduction effective immediately, while still ensuring enough money to complete coverage of remote locations and also maintain the statewide E-911 system. 

This will help reduce the phone bills of an estimated 600,000 cell phone users and save $2.5 million per year.

HI529 College Savings Plan

Getting a child ready to go to college is one of the more important, but also one of the most expensive, undertakings a family can undertake.  College tuition is going up and books and living expenses can push the total to tens of thousands of dollars. 

The State of Hawaii recognizes the value and importance of helping parents save for their child’s higher education.  In 2002 we passed a college savings program, similar to a federal program, which allows the interest from college savings to be exempt from both State and federal income taxes. 

The Lingle-Aiona Administration believes it is important to help families further with meeting increasing higher education costs by allowing them to place funds into a college savings program and receive a tax deduction.  We propose to allow an income deduction of up to $10,000 for a single parent or $20,000 for a married couple who participate in the HI529 College Savings Plan Program.  The deduction allows the family to reduce their taxable income, thus providing an additional incentive to save and participate in this worthwhile program.

Already 3,400 accounts have been set up under the State’s HI529 college savings plan.  This bill will make the plan attractive to more families by saving them an estimated $2.8 million per year.