GOVERNOR LINGLE PROPOSES $346 MILLION TAX RELIEF PACKAGE FOR HAWAI‘I RESIDENTS

For Immediate Release:  January 18, 2007

HONOLULU – Governor Linda Lingle today announced a comprehensive package of tax relief measures to help ease the high cost of living for Hawai‘i residents.  The Administration’s proposals, called “Helping Those Who Need It Most,” total $346 million over two years. 

They include automatically adjusting certain tax measures annually to account for inflation, raising the standard deduction to allow wage earners to keep more of their take-home pay, eliminating the general excise tax (GET) on certain essential foods, providing additional tax exemptions and credits for families with children or aging parents, reinstating the tax exemption on gasoline blended with ethanol and extending the exemption to biodiesel, and exempting National Guard and Reserve members from having to pay vehicle tax and registration fees. 

In addition, the Governor is proposing a one-time tax refund to taxpayers as mandated under the State Constitution because of the large surplus over the past two years. 

“Our residents are struggling with the high cost of living and they will continue to fall further behind unless we provide immediate and long-term tax relief,” said Governor Lingle. 

“Our Administration has consistently supported and proposed tax relief for working families and low income residents, and now, because of our strong financial position, the state clearly has the ability to help ease the high cost of living for our residents.”

In 2006, the Center on Budget and Policy Priorities, a national organization, ranked Hawai‘i second worst in the nation in the tax burden it imposes on low-income families.  Measures passed last year by the Legislature and signed by the Governor provided nearly $50 million in tax relief for Hawai‘i residents and moved Hawai‘i from the second worst to the fifth worst state, in terms of taxing the poor.

“While we made progress last year in adjusting the standard deduction and widening the income tax brackets, we need to do more to help Hawai‘i’s wage earners keep more of their take-home pay,” said Governor Lingle.

The Administration’s 2007 tax relief package includes:

Taxpayer Protection Act of 2007

Because Hawai‘i’s tax measures are not adjusted for inflation, taxpayers are hit with a hidden tax increase each year as inflation rises.  The Administration is proposing a measure, called the “Taxpayer Protection Act of 2007,” that would require the state director of taxation to adjust the standard deduction, personal exemption and tax brackets every year in response to inflation.  This would allow these measures to retain their value over time and protect Hawai‘i taxpayers from this hidden tax increase.  This change would benefit 942,300 Hawai‘i taxpayers (82 percent) with savings of $10 million per year.

Raise the Standard Deduction

Governor Lingle is again calling on the Legislature to increase the standard deduction to 75 percent of the federal standard deduction.  Married couples who file a joint return would be able to deduct $7,500 rather than the current amount of $4,000.  Single taxpayers would be able to deduct $3,750 rather than $2,000. This adjustment in the standard deduction would grant $30 million in tax relief each year to 942,300 Hawai‘i taxpayers.

Last year, the Legislature raised the standard deduction to 40 percent of the federal level.  The change took effect on January 1, 2007.  Governor Lingle has proposed adjusting the standard deduction for Hawai‘i taxpayers every year for the past four years.  Adjusting the standard deduction has long been recommended by tax experts, including every Tax Review Commission since 1985.

Eliminate the GET on 11 Basic Foods

To offset the rising cost of food, the Governor proposes eliminating the general excise tax on certain essential foods such as milk and other dairy products, eggs, canned fish, cereal, juices, peanut butter, beans, carrots, infant formula and infant cereal.  This will eliminate $55 million in taxes paid on foods during the next two years.  It will benefit everyone in Hawai‘i, especially those struggling to feed their families. 

“No one should be taxed for buying basic food necessities,” said the Governor.

‘Ohana Tax Reduction Act of 2007

To further help families meet the high cost of living, the Administration is proposing an additional $1,000 exemption for each child 18 years or younger for families with household incomes of $100,000 or less, and $500 per child for those with household incomes over  $100,000 and up to $200,000.  In addition to the added exemptions, under this proposal, called the “‘Ohana Tax Reduction Act of 2007,” the amount of dependent care expenses eligible for the dependent care services credit would increase from $2,400 for one dependent or $4,800 for more than one dependent to $5,000 per dependent so that families with young children or aging parents, or both, can get tax relief for taking care of their loved ones.  This would include preschool, child care, adult day care, and care for disabled dependents.

This measure would provide $26 million a year in tax relief for Hawai‘i families who are faced with the responsibility of caring for young children and older parents.  It would benefit an estimated 494,600 taxpayers, about 43 percent of the total.

Biofuels Tax Exemption

The Governor is urging the Legislature to extend the general excise tax exemption on gasoline blended with ethanol, and indefinitely extend the exemption to all biofuels, including biodiesel.  Hawai‘i motorists only started benefiting from the general excise tax exemption on ethanol-blended fuels in April 2006 when new administrative rules went into effect requiring at least 85 percent of motor fuel sold in the state to contain at least 10 percent ethanol.  The exemption was meant to encourage the use of alternative, renewable fuels.   The exemption expired on December 31, 2006, adding approximately 11 cents to every gallon of gasoline.  Last year, the Lingle-Aiona Administration proposed extending the general excise tax exemption on ethanol-blended fuels, but the Legislature did not approve the Governor’s proposal. 

If the extension is not approved, Hawai‘i drivers will pay an additional $32 million in taxes for the gasoline they purchase for each of the next two years.

Constitutional Rebate

The Administration is proposing a one-time tax refund of $100 per person for families (taxpayers and dependents) with household incomes up to $100,000, and $25 per person for those earning more than $100,000. This tax refund is required under the Hawai‘i State Constitution whenever the state’s general fund balance exceeds 5 percent of general fund revenues at the end of two successive fiscal years.  Under the Governor’s proposal, a family of four earning $100,000 or less would receive a $400 tax refund.  

This proposed refund would return a total of $90.8 million to all 1,030,269 Hawai‘i resident taxpayers.

Vehicle Tax and Registration Exemption

Recognizing the financial hardships soldiers and their families face while on deployment and during training throughout the year, the Lingle-Aiona Administration proposes exempting non-commercial vehicles owned by members of the National Guard and Reserves from state and county tax and registration fees.  This will save $2 million in State and county fees and taxes in each of the next two years for 10,000 of Hawai‘i’s men and women in uniform.

“This is a small way to send a strong message to our troops and their families that the people of Hawai‘i appreciate their service and sacrifices,” Governor Lingle said.

Read a fact sheet here.

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For more information, contact:

Lenny Klompus 
Senior Advisor – Communications
Phone: (808) 586-7708

Russell Pang
Chief of Media Relations
Phone: (808) 586-0043