Tax Policies that Will Help End Poverty for Hawai'i's Lowest-Income Families
Click here to view the report in full.
As you know, residents in Hawai’i are faced with a number of severe economic barriers to attaining and maintaining self-sufficiency. Our state has the highest cost of living in the United States. The monthly food cost alone for a family of four in Hawai’i is 61% higher than on the mainland. The cost for shelter in Hawai’i is also the highest in the nation, with 75% of those living at or below the poverty level spending more than 50% of their income on housing.
In addition, our residents earn the lowest adjusted incomes than anywhere else in the country. This dilemma is often called the “Price of Paradise” but it has a particularly harsh effect on those living in poverty.
Finally, Hawaii is one of only fifteen states that levy an income tax on families earning minimum wage and one of only four that taxes those living below the poverty level. The aggregate state and local tax rate for our low income population is the sixth highest in the nation. In other words, Hawaii requires its poorest taxpayers to spend more of their household budgets on state and local taxes than the vast majority of states. According to a 2009 analysis by the Institute on Taxation and Economic Policy, the poorest 20 percent of Hawaii taxpayers spent an average of 12.2 percent of their income on state and local taxes each year, while the state’s middle-income taxpayers spent an average of 11.2 percent and the state’s top 1 percent of taxpayers (those earning more than $400,000) paid just 6.3 percent of their income in state and local taxes.
Our report recommends that the State of Hawaii adopt two tax measures to address the needs of low income individuals and families. Both programs will put money directly back in to the pockets of those low income wage earners who need it most by adopting:
- A refundable Hawaii Earned Income Tax Credit (“Hawaii EITC”), which is proposed to be fixed at 20% of the taxpayer’s federal refundable earned income tax credit.
- A non-refundable credit to eliminate income tax on the poor (“Poverty Tax Credit”) for the purpose of (a) eliminating state income taxes on families whose adjusted gross income is below the applicable federal poverty level and (b) reducing by 50% the state income tax on families whose adjusted gross income is between 100% and 125% of the applicable federal poverty level.
Our report also briefly discusses five possible tax policy modifications that could equitably generate significant additional tax revenues that would more than pay for the costs of enacting the Hawaii EITC and the Poverty Tax Credit. They include:
- Eliminating the preferential tax break for capital gains income
- Preventing high-income taxpayers from benefiting from lower tax brackets
- Eliminating pension tax breaks for wealthy retirees
- Eliminating the state income tax deduction on state returns
- Improving sales tax enforcement by requiring online retailers to collect the tax
Adopting a Hawaii EITC and a Poverty Tax Credit programs will go a long way to helping our low income citizens who are facing a daunting struggle to escape poverty.
in the news
- PBS Hawaii, Island Insights with Dan Boylan, Legislation to assist low-income wage earners, March 28, 2013
- Honolulu Star-Advertiser, Staring Down Poverty, February 26, 2013. Click here for a PDF version of the printed article.
- Pacific Business Journal, Hawaii's poorest residents pay highest share of income in taxes, January 30, 2013
- The Nation, This Week in Poverty: An Anti-Poverty Contract for 2013?, January 18, 2013
- Hawaii Public Radio (HPR), A poor tax strategy on The Conversation, January 17, 2013
- Hawaii Tribune Herald, Group: Lighten tax burden for isle poor, January 17, 2013
- West Hawaii Today, Give them a (tax) break, January 16, 2013
- Center on Tax Justice, Tax Reform in Paradise, January 16, 2013
- Institute on Tax and Economic Policy (ITEP), Reports.
- Hawaii Association of Nonprofit Organizations (HANO), Hawaii is one of four states that taxes those below the poverty line, January 15, 2013