Senate Slashes Gov's Plan to Tax Pensions

Gov. Neil Abercrombie's tax reform plans took another hit Friday.

Lawmakers cut his proposal to tax pensions, trimming $62 million in revenue from the $112 million he hoped to bring in.

The Senate Ways and Means Committee heard testimony on Senate Bill 162, which strays from the governor's original plan to tax pensions of more than $37,500.

The new version ups the thresholds — by as much as 100 percent — to tax pensions of higher earners. This version would instead bring in $50 million, according to the state Department of Taxation. The measure would affect 3 percent of taxpayers, compared to Abercrombie's plan, which would have applied to 8 percent.

Still, retiree groups, such as AARP Hawaii, oppose the plan, citing the challenges of living on a fixed income that would shrink if taxed.

The Tax Foundation of Hawaii shared concerns about both versions of the bill because they used what's called federally adjusted gross income as the threshold. That includes all forms of income, and could include Social Security benefits that have already been taxed at the federal level.

"The governor said this wouldn't tax Social Security, but by using federally adjusted gross income, it could," Lowell Kalapa, executive director of the Tax Foundation of Hawaii, testified. "If we're looking at this income called pension, we shouldn't use a threshold that looks at all other income. To be fair ... look solely at the amount of pension income."

The average state government retiree earns a pension of $23,000, according to the state Tax Department.

Senators asked Tax Director Fred Pablo about taxing only pension income.

"That is a possibility for this committee to consider," Pablo said. "As presently proposed from the administration and the Senate, it just looks at federal [adjusted gross income], which could include other types of income."

Have feedback? Suggestions?