Give low-income workers tax break

After years of putting it off, the legislature finally approved an important measure to help Hawaiʻi’s working poor—a state Earned Income Tax Credit (EITC), based on the federal credit.

House Bill 209, while less generous than advocates had hoped, represents a milestone for state tax law. Low-income earners would get a tax credit equal to 20 percent of the federal EITC. The credit could save families with children hundreds of dollars each year in state taxes.

HB209 has been sent to Gov. David Ige, who should sign it. Some 26 states and the District of Columbia have their own EITCs, and it’s time Hawaiʻi joined the list.

Still, HB 209 could have been better. One of the features that make the federal EITC so effective is the fact that the tax credit is refundable. The proposed state EITC is nonrefundable, which is cheaper for the state but less of a benefit to the taxpayer.

A refundable credit would have provided a taxpayer with extra money in her pocket at the end of each tax year—a benefit that can offset the effects of Hawaiʻi’s highly regressive general excise tax, which disproportionately burdens the poor.

The nonrefundable credit simply offsets or zeroes out tax liability, with no cash back.

The Hawaiʻi Appleseed Center for Law & Economic Justice advocated a refundable credit set at 10 percent of the federal EITC, rather than a nonrefundable one at 20 percent. Appleseed pegs the state’s cost at $24.5 million—more than $12.7 million, but considerably less than $49 million. It’s a reasonable compromise for a future time.

For now, low-income workers in high-cost Hawaiʻi could use a break. A state EITC is a good way to give them one.