HI HB145

Addresses a "marginal tax rate cliff" identified in a 2014 research paper where married joint filers in Hawaii with $200,000+ in federal adjusted gross income could face a 367,100% marginal tax rate due to conflicting tax provisions.

Repeals Section 164(b)(5) of the Internal Revenue Code as it applies to Hawaii, allowing state tax deductions for all individual taxpayers regardless of income level (previously disallowed for higher earners).

Establishes a phased cap on overall itemized deductions based on federal adjusted gross income and filing status: joint filers capped at $100,000 AGI threshold, single filers at $50,000, and head of household filers at $75,000, with 25% reduction rates as income increases above thresholds.

Reduces maximum allowable itemized deductions to zero for joint/surviving spouse filers at $500,000+ AGI, single filers at $250,000+ AGI, and head of household filers at $375,000+ AGI.

Effective July 1, 2030 for taxable years beginning after December 31, 2016.