Isle families
would get a break
in GOP tax cut

But there's a downside as well,
says Tax Foundation's Kalapa

By Harold Morse
Star-Bulletin

The Republican tax cut bill now awaiting presidential action would save Hawaii taxpayers $3.225 billion over fiscal years 1999-2009, says the Washington, D.C.-based Tax Foundation.

This would come to average savings of $5,419 per household in Hawaii, according to the foundation.

Lowell Kalapa, Tax Foundation of Hawaii president, who hadn't seen the national group's announcement, said the figures are about what he expected.

For an average family of four, the savings come out to a little more than $1,200 a person over 10 years, he said. That means the average household member would have about $120 more a year in net income than if the present tax rates stayed in effect.

"We (Hawaii) tend to be a beneficiary of the federal system," he said. "For every federal dollar spent, we only send in between 86 and 89 cents."

A cutback in federal expenditures, possibly related to a tax cut, could thus hurt Hawaii, Kalapa said. "The real question is -- is the overall tax cut beneficial for Hawaii?"

The president and congressional Democrats are supporting a smaller tax cut and are negotiating with Republicans for a compromise.

Not all families would benefit equally from the Republican tax cut. The Treasury Department has estimated that the most affluent 10 percent of taxpayers, those with incomes above $90,000 a year, would receive about 60 percent of the savings.

The Tax Foundation noted that "of the $2.9 trillion surplus that the Congressional Budget Office predicts will accrue over the next 10 years, this bill proposes to return 27.4 percent of it over those 10 years to the taxpayers. The majority of the tax relief occurs in the later years because that is when the surplus is predicted to be the largest."

More than one-third of the bill's promised tax relief comes from gradually cutting each of the individual income tax rates by 1 percentage point.

In other words, the tax code would still separate income into five brackets with different tax rates. But instead of the 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent now embodied in these respective tax rates, the new rates would be 14, 27, 30, 35 and 38.6 percent.

The next biggest cut would be in the form of the so-called marriage penalty, meant to help some middle-income married taxpayers by gradually raising the standard deduction for married couples filing jointly to exactly double the standard deduction for single taxpayers. The change in the marriage penalty would not affect couples who itemize deductions.