Several negotiators in the state House and Senate reached a tentative agreement Tuesday night on a compromise draft of legislation altering future Hawaii income tax cuts.
Part of the result is a new tax bracket created to boost state revenue from joint filers earning over $1 million, heads of household earning over $750,000 and single filers earning over $500,000.
Three members each from the House and Senate reached the agreement after exchanging a few proposals over more than five hours between intermittent meetings at the state Capitol in an effort to bridge differences on Senate Bill 3125 before a Friday deadline to produce a compromise draft that can be voted on by the full House and Senate before May 8.
“I think we’re in a pretty good place,” Rep. Chris Todd, leader of the House team, said just before 7 p.m. after three proposed compromise drafts had been exchanged. “We’re getting closer and closer I think.”
An opening proposal made Tuesday by the House team included a provision to deliver even more savings to lower and middle-income households compared with what is already on the books under tax bracket adjustments slated to reduce state income taxes in 2027, 2029 and 2031. Those proposed extra taxpayer savings would be paid for by a 1 percentage-point increase on marginal tax rates for households in the top three income brackets.
Previously, the House had sought to repeal all scheduled taxpayer savings from bracket changes, and add 1 percentage point to the tax rate on an upper tier of income for taxpayers in the state’s three highest tax brackets effective in 2027.
But the Senate’s original preference was to repeal tax cuts via bracket adjustments in 2027, 2029 and 2031 only for joint filers earning over $350,000, a head of household earning over $262,500 and single filers earning over $175,000.
Both original House and Senate positions on the bill aimed to keep in place standard deduction increases slated for 2028 and 2030.
A doubling of the child and dependent care tax credit was part of the House’s opening compromise proposal similar to its prior position, and would be phased out for households with higher incomes.
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House negotiators on Tuesday did offer to further compromise with the Senate by phasing out four out of seven commercial tax credit programs desired by the Senate as a way to help the state retain more revenue.
The four tax credit program cuts endorsed by the House team were for renewable energy mainly represented by rooftop solar systems, capital goods, ship repair and technology infrastructure renovation—and would save a roughly estimated $520 million in state revenue.
Todd estimated that the House team’s total opening compromise proposal for SB 3125 would generate an additional $680 million through June 30, 2032. Most of that would be from the tax credit program eliminations.
Todd, who chairs the House Finance Committee, said starting negotiations over SB 3125 were a little awkward because many senators recently declared that they were unwilling to compromise on cutting back any bit of tax relief for lower and middle-class households under an existing eight-year package of historic tax cuts that lawmakers approved in 2024. Senate negotiators also opposed raising taxes on households in the top three income brackets as the House sought.
“It’s taken us some time to kind of meet them where they’re at, and find a proposal that fits within their parameters that they have offered,” Todd said shortly before Tuesday’s round of meetings began.
“They’ve said that they’re prioritizing working-class families and want to keep 100% of that tax relief intact,” Todd said, referring to Senate negotiators led by Sen. Donovan Dela Cruz. “This proposal that we’re putting forward actually goes further than that for working-class families by taking a portion of the tax relief that has been provided to the wealthiest 1% in our state and reallocating that to additional savings for working-class families.”
Todd (D, Hilo-Keaau-Ainaloa) said an average family of four would save an additional $1,300 to $1,500 over the next six years if the opening House compromise proposal was adopted.
A joint tax filer earning $550,000 would pay an extra $1,700 while a joint filer earning $350,000 would pay $300 less, Todd added.
Dela Cruz, chair of the Senate Ways and Means Committee overseeing state finances, countered the House team’s Tuesday offer without budging much on income tax breaks for households, and said tax credits for households are often unclaimed and therefore not very useful.
“The Senate position has consistently been that putting money into working families’ pockets every pay period is better than waiting until the end of the year for a tax credit,” he said during the meeting.
Dela Cruz (D, Mililani-Wahiawa-Whitmore Village) also pushed to have all seven industry tax credits repealed, but compromised on phase-out timetables and other details while including funding for lower-income households to pay for rooftop solar with low-interest or forgivable state loans.
Ending the commercial tax credit programs, according to Dela Cruz, would retain an estimated $971 million in revenue for the state helping to offset losses from income tax cuts.
“This is integral to helping balance the financial plan and ensure our shared goal of income tax relief for Hawaii’s working and middle income families,” he said after sharing the Senate team’s counterproposal. “This draft represents a real path forward to tax relief for Hawaii’s working families. We appreciate the work that the house has done and believe that this is a compromise that incorporates the shared priorities of providing tax relief to working and middle-income households in multiple ways.”
After the counterproposal from the Senate team, Todd came back with some proposed tweaks to commercial tax credit sunset terms and proposed one new tax bracket to boost state revenue from joint filers earning over $1 million, a head of household earning over $750,000 and single filers earning over $500,000.
An hour later, Dela Cruz agreed to the new tax bracket and sought a cap on the renewable energy tax credits before a phase-out is completed in 2030, to which Todd said OK.
“I think we have a bill,” Dela Cruz replied, indicating an agreed-upon draft to present to the full House and Senate.
The other members of the negotiating committees were Reps. Jenna Takenouchi (D, Pacific Heights-Nuuanu-Liliha) and Joe Gedeon (R, Hawaii Kai-Kalama Valley) for the House, and Sens. Sharon Moriwaki (D, Waikiki-Ala Moana-Kakaako) and Kurt Fevella (R, Ewa Beach-Ocean Pointe-Iroquois Point) for the Senate.
A decision on SB 3125 is necessary to move forward with work for the House and Senate to compromise on the state budget bill, which also faces a Friday deadline to have the two sides agree on budget appropriations.
The tax relief bill by itself stands to have a big impact on the state’s finances over the next several years because the state’s financial outlook has gotten gloomier since the eight-year package of tax cuts was enacted in 2024.
Gov. Josh Green in January proposed legislation to repeal the last five years of tax cuts to offset anticipated declines in federal funds through 2031. Green aimed to preserve about $1.8 billion in state revenue from 2027 to 2031 as a way to partly offset nearly $3 billion in what he anticipated state revenue losses due to recent federal government actions.
Green also had proposed using about $600 million of the preserved revenue from repealing tax cuts to extend a sunset date for an elevated state earned income tax credit and a food/excise tax credit to 2032 from 2027, and to triple the size of a child and dependent care tax credit.
Photo credit: Hawaii State Capitol Building/Facebook
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© 2026 The Honolulu Star-Advertiser. Visit www.staradvertiser.com. Distributed by Tribune Content Agency LLC.
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