2022 legislative session: A big win for working families; but more must be done

As the legislative session comes to a close, Hawaiʻi’s working families have much to celebrate. With $2 billion in projected additional revenue, lawmakers chose to make key investments to support Hawaiʻi’s working class—the folks that make up our state’s economic base. One bill in particular, HB2510, combined two priority economic justice policies to deliver a significant household income boost to hundreds of thousands of Hawaiʻi workers.

First, HB2510 raises Hawaiʻi’s minimum wage from its current $10.10 an hour up to $18 an hour by the year 2028. Once fully implemented, this wage increase is projected to generate $1 billion in additional wages per year for more than 200,000 workers. For minimum wage workers, it will mean an increase in annual income of $16,400. This puts Hawaiʻi on a path toward having the highest minimum wage in the country.

For Hawaiʻi workers employed in low-wage jobs, this bill represents a major step toward financial stability. However, more work needs to be done to ensure all of Hawaiʻi’s workers benefit from our state minimum wage law equally. The final compromise version of HB2510 includes an increase to the state “tip credit” (in reality a “tip penalty”). The tip penalty allows employers to pay tipped employees a sub-minimum wage on the premise that their tips will make up the difference.

HB2510 increases the size of Hawaiʻi’s tip penalty from $0.75 per hour to $1.50 per hour, provided that employees are averaging at least $7 per hour over the minimum wage after accounting for their tips. Theoretically, this should mean that—once the law is fully implemented—a waiter or waitress must be earning at least $25 per hour with tips for an employer to legally apply the tip penalty. However, it is unclear if workers and employers understand or are even aware of this requirement. Evidence from around the country suggests that they are not.

Whether applied legally or not, the tipped sub-minimum wage has its roots in racist labor practices stemming from the post-Civil War reconstruction period. No one should be paid a sub-minimum wage simply because of the kind of work they do. Hawaiʻi should join with other forward thinking western states like California, Oregon, Washington and Nevada, and finally eliminate the tip penalty.

Tax Equity Progress

Also included in HB2510 is language that makes Hawaiʻi’s state Earned Income Tax Credit (EITC) both permanent and refundable. Since the mid-1970s, the federal EITC has provided a refundable credit to households earning up to $57,000 per year. This tax credit is targeted to working families with low incomes, and helps to supplement their wages by providing an annual tax refund based on the number of claimed dependents. This credit is largely viewed as one of the most effective anti-poverty tools the government has at its disposal, helping to keep over 5 million households out of poverty each year—households that include 3 million children.

Hawaiʻi’s state level EITC has existed since 2017, providing up to 20 percent of the federal credit to qualifying families. However, the credit was initially created to be non-refundable, which only helps to lower the tax liability of qualifying households, but does not provide an actual cash refund. In addition, Hawaiʻi’s credit was set to expire at the end of 2022.

Under Hawaiʻi’s newly refundable credit, almost 100,000 families will be able to depend on direct cash payments year after year, averaging around $400 per qualifying taxpayer. Working together with the federal credit, Hawaiʻi’s EITC will dramatically improve the ability of working families to cope with Hawaiʻi’s high costs for food, fuel and housing.

While making Hawaiʻi’s EITC refundable is a major win for working families, there’s room for improvements to increase the positive impact of this antipoverty program. First and foremost, some states have taken steps to increase the percentage of the federal credit their state version provides, so low-income households receive even more money at tax time. Connecticut recently increased their state percentage from 23 percent to 30.5 percent of the federal EITC. In Maryland, families can receive a credit equal to 50 percent of the federal EITC.

Additionally, some Hawaiʻi households are completely excluded from EITC eligibility simply because of their immigration status. Despite living in, working in, and contributing to the wellbeing of our communities, workers who file taxes with an Individual Tax Identification Number (ITIN) are ineligible to receive the federal EITC. Since eligibility for Hawaiʻi’s EITC aligns with federal regulations, ITIN filers will not see any benefit from Hawaiʻi’s permanent and refundable state EITC.

While some of these workers may be undocumented, the vast majority of them are hardworking participants in our economy and are contributing to our tax base, despite being denied access to most public benefits and programs. Multiple states have made the bold decision to include ITIN filers in their EITC programs, including California, Oregon and Washington. To fully maximize the impact of Hawaiʻi’s state EITC, the next legislature should increase the size of the state credit for all households and expand eligibility so that all workers who file their taxes can access this powerful poverty-fighting tool, regardless of their immigration status.