Hawaii’s New Top Rate of 11% on Income Over $200,000 is Highest State Rate in U.S.

May 12, 2009

The Hawaii Legislature forced through several tax increases on May 11, including an income tax increase and tax increases on cigarettes and other tobacco products, among others. With the exception of the cigarette tax increase, all these tax increases were vetoed by Governor Linda Lingle on May 7 in Hawaii’s first-ever public veto ceremony attended by nearly a thousand taxpayers and citizens. However, on May 11 the state legislature was able to override each of the vetoes and enact the tax increases.

The broadest tax increase and the one receiving the most attention is an income tax increase on higher-income earners. The legislation adds three income tax brackets on top of the current nine, at rates of 9% on income over $150,000 ($300,000 for joint filers), 10% on income over $175,000 ($350,000 for joint filers), and 11% on income over $200,000 ($400,000 for joint filers). By adding the 11% bracket, Hawaii will move from eighth to first in the ranking of top state income tax rates, passing Maine, New Jersey, Iowa, Oregon, Vermont, Rhode Island, and California.

In “The Price of Paradise: Hawaii Becomes Fifth State to Adopt New Income Tax Brackets on High-Earners,” Tax Foundation Fiscal Fact No. 169, Joseph Henchman and Mark Robyn review Hawaii’s new tax increase and how it affects their interstate competitiveness. Henchman and Robyn also look at the problems associated with the new trend of the new trend of taxing high-income earners, in which Hawaii is following budget-woe states like California, Maryland, New Jersey, and New York.

Click here to read the Tax Foundation Fiscal Fact.

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