The state House and Senate voted unanimously Wednesday to approve what was described as a monumental state income tax cut that is expected to save Hawaii taxpayers more than $5 billion by 2030.

In a long day of floor votes, lawmakers debated and passed a new state budget for next year. They also approved measures to eliminate the general excise tax on some medical providers, and prod the counties to allow more homes to be built in established urban neighborhoods.

Legislators passed nearly 190 bills Wednesday covering subjects ranging from coffee labeling to state plans to spend billions of dollars on airport and highway construction.

House Finance Committee Chairman Kyle Yamashita smiled widely during floor debate as he described the income tax relief offered up in House Bill 2404, which he boasts is the largest tax cut in state history.

The bill will double the standard deduction that state taxpayers can claim when they prepare their 2024 taxes next year, and then adjust income tax brackets and standard deductions upward in a series of steps in later years as Hawaii’s minimum wage increases.

The state Department of Taxation calculates those changes would mean a family of four earning Hawaii’s median household income of $91,010 would see their income tax liability decrease by 69% by 2031.

That same family would owe $5,323 in taxes under the current tax law, but would see that reduced to $1,639 in 2031. In all the bill would effectively boost the income of that hypothetical family by 4% a year, according to a written analysis by tax officials.

“Between 2024 and 2031, this household would pay $19,925 less in taxes,” according to the Tax Department analysis. “This is a significant boost to the family’s disposable income.”

Sen. Donovan Dela Cruz, chair of the Senate Ways and Means Committee, said the bill marked “one of the most substantial income tax relief measures our state has ever passed.”

“Beyond serving our immediate needs, this bill casts a hopeful gaze toward the future, laying the groundwork for future generations to inherit a fairer and more equitable tax system,” Dela Cruz said.

Several senators, including Joy San Buenaventura, argued that HB 2404 effectively rebuts criticism that the Legislature had not done enough to help the poor and middle classes.

“This is huge,” agreed Sen. Angus McKelvey, who called the legislation the most important of the year.

House Republican Minority Leader Lauren Matsumoto praised the bill, saying “we talk about cost of living all the time in this state, and we’ve been looking for an income tax cut for a very, very long time. I’m really encouraged that we’re going to be putting more money in the pockets of those in our communities.”

House Republican Gene Ward called the measure “historic.” But House Democratic Majority Whip Rep. Amy Perruso warned the tax changes will disproportionately benefit wealthier taxpayers, which will exacerbate income inequality in Hawaii.

Perruso cited an analysis by the Institute on Taxation and Economic Policy that cautions that by 2025, the state will forgo $656 million in revenue under the bill. Perruso called it a “risky approach” because it reduces state tax collections without adopting more progressive tax strategies to replace the lost money.

The institute found that 42% of the benefits from the bill would accrue to the top 20% of earners, meaning people who earn more than $147,000 annually, she said.

“In stark contrast, those in the lowest 20% income bracket earning less than $27,200 will receive an average tax break of only $335,” Perruso said. “This discrepancy has a clear skew toward benefiting those who are already well off.”

“There are more targeted ways of designing tax policy so as to better support those who are struggling, our working families who are having to move to the continent to survive,” she said.

Still, Perruso joined all 51 House members and 25 state senators in voting in favor of the tax cut bill.

The Department of Taxation projects the bill would reduce state tax collections by a modest $41 million next fiscal year, but the cost to the state would increase in steps over time.

By fiscal year 2028 the state would forgo $906 million because of the bill, and in fiscal year 2031 the measure would reduce state tax collections by more than $1.3 billion, according to the department’s analysis.

Lawmakers also approved a new $19.21 billion state budget for next year. Yamashita, a Maui Democrat, thanked his colleagues for supporting the people of Maui and Lahaina after the Aug. 8 West Maui wildfires.

The Legislature this year approved appropriations totaling $1 billion for food, housing, mental health services, health care, infrastructure and recovery management, he said. The state budget included nearly $120 million in construction funding for the Lahaina recovery.

“On behalf of my island home and my fellow representatives from Maui, I’d like to extend my deepest gratitude for this body for placing Maui at the forefront of this year’s budget,” he told House members.

Rep. Della Au Belatti, chairwoman of the House Committee on Health and Homelessness, said even with the commitment to Maui, the new budget is “investing in health and human services in numbers that we have not done before.”

Pushing For More Affordable Housing

Lawmakers passed a significant but controversial bill to allow for denser residential development of urban lots. Senate Bill 3202 was authored by Sen. Stanley Chang, who has made affordable housing his singular issue.

As explained in a committee report for the bill, lawmakers say that the state’s housing crisis has reached a point where “existing methods are no longer sufficient to meet the increasing demands for affordable housing.” As a result, thousands of residents are leaving Hawaii every year and many families are living paycheck to paycheck — and the single biggest expense is housing.

SB 3202 would require county zoning ordinances to allow for two or more additional dwelling units for each residentially zoned lot within an urban district. Landlord “covenants” or agreements in those same areas would be prohibited from placing limits or other restrictions on those units.

SB 3202 is backed by key state agencies such as the Office of Planning and Sustainable Development and the Hawaii Housing Finance and Development Corporation. A range of county agencies and officials also like it, as do influential groups with their own agendas including the Council for Native Hawaiian Advancement, the Hawaii Appleseed Center for Law & Economic Justice and the Building Industry Association of Hawaii.

But some members of the Honolulu City Council don’t like SB 3202. The same goes for some neighborhood board members in fully developed locations like Hawaii Kai, Kailua and Manoa on crowded Oahu. The fear in some corners is that the measure will actually make residential property more expensive, as developer Peter Savio argues.

The Senate was divided over SB 3202, with nine of the 25 members voting against it and four others voting for it with reservations.

Another housing bill, Senate Bill 2919, met less resistance Wednesday. It seeks to give counties greater authority over regulating short-term vacation rentals — even to permanently shutter units.

“It’s undeniable that this measure has been long overdue, and it’s heartbreaking that it took our beloved town of Lahaina burning down — leaving so many without stable shelter — to finally get this common-sense legislation this far,” Maui County Councilwoman Keani Rawlins-Fernandez said in support of SB 2919.

Maui Mayor Richard Bissen also backs the bill. And on Wednesday only a handful of lawmakers voted against it, so it now heads to Gov. Josh Green for his likely approval.

“SB 2919 is a testament that amazing things can come from devastation,” Jordan Ruidas of Lahaina Strong said in a statement following the vote.

Exemptions From The General Excise Tax

The most impassioned floor speeches in the Senate on Wednesday praised the unanimous passing of a bill that removes the general excise tax from medical and dental services provide to Medicaid, Medicare or TRICARE benefits. TRICARE is the health care program for uniformed service members, retirees and their families.

Senate Bill 1035 was supported by a number of health care providers, especially ones operating on the neighbor islands and in rural communities. It also brought together advocates like AARP Hawaii and the Grassroot Institute of Hawaii that don’t often see eye to eye on taxes.

While medical services at nonprofit hospitals are exempt from the GET, it currently is fully levied on individual or group practices or clinics. Lawmakers in the Senate said SB 1035 was about equity, universal access to health care, growing the employment of workers at such services, and building infrastructure — even though it will amount to a revenue loss to the state estimated at $70 million to $84 million annually.

“The exemption is necessary as our most vulnerable patients, particularly those in underserved communities, cannot access local providers in a timely fashion to receive the diagnosis and treatment they desperately need,” Dela Cruz said.

Sen. Lynn DeCoite thanked Dela Cruz and other colleagues who championed the legislation.

“Coming from an island like Molokai, the most rural of rural islands, with the lack of transportation and representing some of the most rural and isolated and underserved areas, I’m very grateful for the support and work that you have done on this bill,” she said.

Another measure getting the Senate’s approval was House Bill 2278, which requires that macadamia nut packages be labeled to show the country of origin. While macadamia nuts are widely recognized as a top export from Hawaii, local farmers have struggled as suppliers from South Africa and Kenya have stepped up production.

HB 2278 was backed by the state Department of Agriculture, the Hawaii Farm Bureau and dozens of local growers and processors.

Sens. Tim Richards and Dru Kanuha, whose districts are on the Big Island where macadamia nut farms are concentrated, both called the labeling bill historic.

“This is about agriculture, truth in labeling and promoting what we can do and grow here in our state,” Richards said. “The mac nut stakeholders came to the table, both our processors and our farmers.”

Richards also welcomed the passage of House Bill 2298, which will require, beginning in 2027, that roasted, instant and Hawaii-processed coffee blended with coffee from outside the state contain no less than 51% of coffee grown in Hawaii. The current requirement is just 10%.

The debate over coffee labeling and geographic origin has gone on for more than 30 years. HB 2298’s author, Rep. Nicole Lowen, called the approval of the bill “a huge win.”

“This initiative is about protecting Kona’s world-renowned coffee and ensuring that local farmers receive the prices they deserve for their products, and that dollars stay in Hawaii’s economy,” said Lowen, whose Big Island district holds many coffee farms.

Lowen added that she still wished that the percentage of Kona coffee required for it to be labeled Kona was 100%. But she nonetheless said major progress had been made.