Tax plan helps
middle class

State Sen. Bunda crafts a cut
to rival Lingle’s plan
to help the poor

Middle-class families in Hawaii would see big tax savings under a new proposal by state Senate President Robert Bunda.

Bunda's proposal, which he sees as a "middle-class relief effort," would use the same $60 million that Gov. Lingle wants to use for tax relief for the working poor.

Competition between the two plans is likely to dominate budget discussions during this legislative session.

Bunda's plan would adjust the tax brackets so it would take more income to reach the highest taxation level.

To increase the appeal for his tax cut, Bunda also expanded the lower tax brackets.

For instance, a family of four making $40,000 a year now pays $2,256 a year in state income taxes, according to figures from Bunda's office. Under his proposal, the family's taxes would drop to $1,680. A family making $70,000 would see its $4,566 tax bill fall to $3,016 under the Bunda plan.

The Republican minority welcomes any talk of tax relief.

"I am always in favor of tax reduction and tax elimination, any plan that will reduce taxes," Sen. Sam Slom said.

Observers are also encouraged.

Bob Chun, CPA and tax adviser, said he is in favor of either the Lingle or Bunda plan.

"By widening the brackets or moving them, there would be a big drop, and that would be a good deal," Chun said of Bunda's plan.

Lingle's proposal to increase the standard deduction also appeals to Chun.

"If you increase the standard deduction, the tax rate would be lower for some working people," he said.

Both Bunda and Lingle have tax experts on their side. The 2003 state Tax Review Commission urged lawmakers to fix both the standard deduction and the income tax brackets.

"If the State cannot afford to immediately reduce net income taxes, it should make a commitment to phase in over time a higher standard deduction, a higher personal exemption, and wider marginal tax brackets," the commission recommended.

The standard deduction hasn't been changed since 1984, the commission noted. The result is that people who qualify for welfare also have to pay income tax, because the state standard deduction starts at $1,900, while the federal deduction begins at $7,600.

In other words, people who make just $1,900 have to pay state tax, but federal income tax doesn't start until an individual makes $7,600.

The commission also noted that "state income tax brackets are so compressed that persons on public assistance pay income taxes, and the highest marginal rate for married taxpayers filing jointly begins when their taxable income reaches $80,000."

Bunda said the tax question is one of fairness to the middle class, who already contribute the most to state revenues.

"The $60 million represents a loss for us, but a gain for the middle class," Bunda said.

Slom said that even if a tax cut plan were to move out of the Senate, it would face opposition in the House.

"The House Democrats have proposals to increase the excise tax for mass transit, and also there are proposals to raise taxes on tobacco and liquor, plus increased fees, which are another type of tax," Slom said.

Slom said he preferred Lingle's plan because it would offer "a broader reduction and help more people."