Create a Low-Income Workers Credit

Bills: SB2207 and HB 1806
Related Bills: HB 1719

With the cost of basic necessities continually rising in Hawai‘i, working households living in poverty face a daunting struggle to make ends meet:

  • Hawai‘i has the highest cost of living in the United States, at more than 160% of the national average. The cost of shelter in Hawai‘i is the highest in the nation, with 73% of households living in poverty spending more than half of their income on housing. Groceries cost almost 60% more than the national average.
  • Our residents earn the lowest wages in the country when adjusted for the cost of living, while the tax rate for low-income households is among the highest in the nation.
  • Hawai‘i has the 9th highest rate of poverty in the nation under the federal supplemental poverty measure, which factors in the state’s cost of living and government assistance available to families. This means many of our low-income families who live above the official poverty thresholds are still facing severe economic hardship.

Where Hawai’i Ranks

  • When Hawai’i makes working families living in poverty pay income taxes, they push them deeper into poverty, which ultimately results in the need for expensive social service expenditures by the state.
  • The poorest taxpayers pay, on average, approximately13 cents of every dollar of income in taxes, while those earning more than $400,000 pay closer to 8 cents on every dollar of income. Hawaii’s residents in poverty pay more in state taxes than all but 3 other states.
  • The Center on Budget and Policy Priorities reported in 2011 that Hawai‘i is one of only 15 states that levies an income tax on full-time workers in families of three earning minimum wage ($15,080). The federal poverty guideline for a family of three was $22,470 in 2013, with such a family owing $497 in Hawaii income taxes.
  • Exempting low-income workers from paying state income taxes would help alleviate poverty and make the state tax system fairer by reducing taxes on those least able to afford them.

Proposed Low Income Workers Credit

  • The proposed low-income worker credit (LIWC) is a non-refundable state income tax credit that would eliminate final income tax liability entirely for any family in poverty, while also reducing final income tax liability by half for households between 100-125% of the federal poverty guidelines. In nearly all circumstances, only working households would be eligible for this credit.
  • Using the 2013 federal poverty guidelines for Hawaii, this would involve eliminating any final income tax liability on single individuals earning less than $13,230, or married couples earning below $17,850.
  • A single parent with two children would see the family’s final income tax liability eliminated if they earned less than $22,470 in a year, and a two-parent family with two children would pay no income tax if their combined income was below $27,090.
  • The cut-offs would change each year as new federal poverty guidelines are set.