Chair CHUN-OAKLAND, Vice-Chair GREEN, MEMBERS OF THE COMMITTEE:
The League of Women Voters of Hawaii supports the intent of SB 2833 which provides an income tax exemption for taxpayers over 65 years of age who have Federal adjusted gross income below certain thresholds.
The League believes that public policy should promote self-sufficiency, and that the most effective social programs are those designed to prevent or reduce poverty. SB2833 is badly needed to address this purpose in Hawai`i. 1
However, our position also is that the income tax base should be as broad as possible with minimal tax preferences and a progressive rate structure. We are troubled that Hawaii already has significant income tax exemptions for the population over 65, and these exemptions aren’t addressed in this measure. Hawaii currently exempts all federal, military, and in-state pensions as well as all Social Security benefits from State income tax. In the interest of generational equity, what is special about this type of income compared with wage income? The exemptions effectively reduce the taxable income of many of our retirees, so it’s entirely possible for a senior to have high personal net worth and sizeable untaxed retirement income yet still benefit from this measure.
If lawmakers decide to move forward to help low income seniors who are in dire need of relief a schedule of gradually reduced exemptions on pension income seems worth considering. This might avoid incentivizing people to retire prematurely to take advantage of a cutoff date for pension exemptions while allowing the State to keep its retirement promise to those actively planning for retirement.
This measure should be looked at in the context of related reforms to the State tax code. If this is the approach taken, for this particular bill we would like to suggest that instead of having specific dollar figures for eligible income, eligibility be specified by reference to a percentage of the Federal Poverty Level (FPL), thus eliminating the need to continually revisit this legislation to account for inflation. For example, $25,000 for an individual is currently 186% of FPL.
The extra money poor seniors would have if SB2833 is enacted would surely be spent immediately on basic necessities of life, thus adding economic activity to the State and its businesses.
Finally, we hope our State Tax Department and the Department of Business and Economic Development will provide some analysis on this bill for the benefit of this Committee and all Hawaii citizens. We want to move forward with confidence that the income tax changes proposed will still provide adequate resources for our State programs and services.
We urge you to consider our comments on this bill including the suggested changes to income eligibility definitions.
Thank you for the opportunity to submit testimony.