The Department of Business, Economic Development and Tourism (DBEDT) released a report today, “The Impact of the Federal Tax Cut and Jobs Act (TCJA) on Hawaii Households,” which shows the total reduction in Federal individual income tax is more than $710 million for tax year 2018.
“We’re looking at disposable personal income increasing by $710 million, where we will see an increase in consumer spending by more than $600 million,” said DBEDT Director Luis P. Salaveria. “This should help to boost our economic growth, if federal spending in Hawaii remains unchanged.”
Chief State Economist Dr. Eugene Tian noted that the analysis provides average figures for Hawaii households on their 2018 tax reductions in individual income tax.
“In general, households with adjusted Federal gross income (AGI) less than $500,000 will see tax reductions and households with AGI above that level will see an increase in individual income tax,” said Tian. “However, high-income households will benefit more from business tax reductions since most of their income are from businesses and investment.”
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This report focuses on individual income tax only. Following are some of the highlights of the report:
• On average, the provisions of the TCJA will result in lower tax liabilities for most income groups in Hawaii. The higher income groups will see increases in tax liability.
• The substantial increase in the standard deduction will benefit the lower to mid-range income groups.
• In general, taxpayers filing jointly will benefit more under the TCJA than single filers and head of household filers.
• The standard deduction nearly doubles for all filing status categories under the TCJA. A significant number of filers in the mid-income range will shift their filing behavior from itemized to standard deduction, due to the increase in the standard deduction.
• Under the TCJA personal exemptions are eliminated. However, this is more than offset by the doubling of the standard deduction as noted above.
• The TCJA doubles the child tax credit from $1,000 to $2,000, which will benefit Hawaii households with children. Furthermore, there is an increase in the refundable portion up to $1,400.
• Generally, taxpayers in the higher income groups will have a lower tax liability by itemizing deductions and, thus, will not benefit from the increase in standard deductions.
• Higher income groups will be impacted by the $10,000 cap on state and local tax (SALT) deductions.
• While a majority of Hawaii’s individual taxpayers will have a reduction in federal income tax liability, the two AGI categories above $500,000 will experience an increase in their tax liability for the 2018 tax year, mostly due to the SALT cap provision.
The analysis in the report is based on the 2015 Federal income tax returns from the Internal Revenue Services (IRS), which is the latest year available for detailed state level data.