Hawaii’s Tax Cliff

Tax attorney Rob Wood has recently written an article for Forbes magazine—“ Forget France's 75% And 100% Tax, Tax Rate In Hawaii Hits 367,000%”—discussing some bizarre tax provisions in Hawaii and elsewhere.

Rob Wood

Rob Wood

Hawaii has a strange law that involves what Wood refers to as a “tax cliff.” One more dollar of income triggers a situation where a large amount of tax is imposed. “Someone who is earning $199,000 shouldn’t make that extra dollar to get to $200,000,” Wood says, because that extra dollar will be very heavily taxed. This conclusion is based on an academic paper, Wood explains.

There are many federal tax rules that are strange and somewhat analogous. Wood mentions the alternative minimum tax (AMT). It is possible for a taxpayer to get a tax bill that exceeds the amount of cash the taxpayer has taken in. While it sounds counter-intuitive, it is the way the AMT is computed. Wood continues to be an advocate for a simpler tax system. “Flat taxes have been discussed for most of the 35 years that I’ve been practicing,” Wood says.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.