Social Sciences
4 years ago

Hawaii Tax Cliff Leads to Marginal Rates of 367,100% - Study

Accounting & taxation
Marginal Tax Rates around the Hawaii Itemized Deduction Cliff
Terrance Jalbert, Gary M. Fleischman, Mercedes Jalbert

Paper Summary

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The Hawaii tax system has a unique rule where if your income is over 200,000,youcan′tdeductstatetaxespaidandyourtotaldeductionsarecappedat200,000, you can't deduct state taxes paid and your total deductions are capped at 200,000,youcan′tdeductstatetaxespaidandyourtotaldeductionsarecappedat50,000. This creates extremely high marginal tax rates, reaching up to 367,100%. The study suggests changes to these rules and warns that other states might adopt similar policies. Federal tax laws are also changing to limit deductions in a similar way.