Of the taxpayers who had capital gains income in 2019, the 7.7 percent who earned $400,000 or more that year also received 79.4 percent of the capital gains income in the state. This capital gains tax loophole benefits the highest-income taxpayers, including non-residents who profit from investing in real estate in Hawaiʻi. The higher the income of taxpayers the greater the share of capital gains in their taxable income,” according to DOTAX. “Capital gains are heavily concentrated in the high end of the income distribution especially for nonresidents. The capital gains tax loophole is a tax break for the richest and most privileged people in Hawaiʻi. Closing the capital gains tax loophole would allow the state to make critical investments using revenue collected from those who can afford to pay a little more. Our state needs to invest in our schools, hospitals, infrastructure, parks, programs for working families, and the development of truly affordable housing.
In the big picture, Hawaiʻi's most pressing problems-the housing shortage, cost of living burdens, the homelessness crisis, climate change-fueled environmental hazards, and more-all require tax revenue to solve. In order to make this tax system more equitable, capital gains income should be taxed at the same rates as regular income, with tax rates that progressively increase for wealthier taxpayers. It’s unfair that many struggling working families in Hawaiʻi must pay a higher tax rate on their wages and income than the rich pay on their income from capital gains. And because ownership of capital assets is concentrated in white households as a result of historic and ongoing systemic racism, lower tax rates on capital gains support and perpetuate racial inequities in the distribution of wealth. This is, effectively, a tax loophole that almost entirely benefits the rich.īecause profits from capital gains overwhelmingly go to people who are already wealthy-those who have extra income to invest in capital assets in the first place-giving preferential tax treatment to capital gains income makes economic inequality worse.
Hawaiʻi is one of only nine states that allows capital gains to be taxed at a lower rate than ordinary working people’s income. Capital gains are profits (income) that come from selling a capital asset, such as stocks, bonds, art, antiques or real estate at a profit.
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