No income tax for working class? Unions float radical proposal

The excise tax is also generally considered to be regressive, meaning it weighs more heavily on lower-income people. Critics point out that the excise tax requires less-affluent people to pay a larger share of their incomes on essential goods such as food than more wealthy people.

Will White, interim executive director of the Hawaiʻi Appleseed Center for Law & Economic Justice, said he supports some parts of the bill, including increasing the renters’ tax credit, but questioned the core concept of providing income tax relief for low-income families by increasing the excise tax.

“If you’re worried about the impacts on low-income taxpayers, it’s very surprising to me that they would propose an increase to the general excise tax, which is probably the most problematic piece of the bill for us,” White said.

Lower-income residents generally pay very little in income taxes, he said, “so it’s hard for me to understand how that could be the main driver of people exiting the state. Really, it’s the high cost of everything else, like housing and food; those are the two biggest costs for any household in Hawaiʻi.”

The provisions that would eliminate the excise tax on food and some medicines would help, but White suggested a better approach would be to expand an existing state tax credit that was created to offset some of the impact of the excise tax on food. Another possibility would be to create a new child tax credit to support working families, he said.

Dylan Moore, assistant professor with the University of Hawaiʻi Economic Research Organization, said high taxes do sometimes prompt people to relocate, but it is generally higher-income people who move to avoid taxes.

The cost of housing is one of the biggest reasons working people leave Hawaiʻi, and “in some sense, you can’t solve the housing problem just by giving people more money,” he said.

“The effects of any tax cut like this in terms of improving people’s wellbeing or what they can afford are always going to be undermined to some extent, as long as we have these housing supply restrictions in place,” Moore said.