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Marginal Tax Rates Around the Hawaii Itemized Deduction Cliff

Accounting and Taxation V. 6(1), pp. 25-38, 2014

14 Pages Posted: 14 Mar 2014  

Terrance Jalbert

University of Hawaii - Department of Business Administration

Gary M. Fleischman

Texas Tech University

Mercedes Jalbert

The Institute for Business and Finance Research

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2014

Abstract

The State of Hawaii allows paid State taxes as an itemized deduction on the State income tax return. The deduction is available only for individuals with Federal adjusted gross income less than $200,000. Hawaii also limits total itemized deductions to $50,000 for individuals with Federal adjusted gross income of $200,000 or above. These provisions create a tax cliff that implies extraordinary marginal tax rates. The added dollar of income from $199,999 to $200,000 triggers a loss of the entire tax paid deduction and caps itemized deductions at $50,000. We compute marginal tax rates for adjusted gross income levels around the $200,000 tax cliff. Results indicate marginal tax rates reach levels as high as 367,100 percent. The paper provides taxpayers with concise information regarding the importance of these Hawaii tax cliffs and suggests policy changes.

Keywords: Hawaii, Taxes, State Taxes, Marginal Tax Rates

JEL Classification: H1, H71

Suggested Citation

Jalbert, Terrance and Fleischman, Gary M. and Jalbert, Mercedes, Marginal Tax Rates Around the Hawaii Itemized Deduction Cliff (March 12, 2014). Accounting and Taxation V. 6(1), pp. 25-38, 2014. Available at SSRN: https://ssrn.com/abstract=2408302

Terrance Jalbert (Contact Author)

University of Hawaii - Department of Business Administration ( email )

808-974-7456 (Phone)

Gary M. Fleischman

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Mercedes Jalbert

The Institute for Business and Finance Research ( email )

P.O. Box 5569
Hilo, HI 96720
United States

HOME PAGE: http://www.theIBFR.com

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