Possible recession, federal cuts could have outsize effect on low-income households

A new budget study from the Hawaiʻi Appleseed Center for Law and Economic Justice shows that the state is spending the most money on human services.

But those who likely need the services the most are also paying the most in taxes. And economic analysts believe Hawaii is poised to enter a mild recession.

Federal funding cuts could also strip Hawaiʻi’s health care industry of $400 million in Medicaid spending.

It’s also a big worry for the Hawaiʻi Appleseed Center. The group says on top of all that, the state’s general excise tax makes it even harder for low-income families to weather even a mild recession.

“Any time dollars are changing hands, the tax gets levied,” said Appleseed Center executive director Will White. “It generates a lot of revenue.”

The group said the GET accounts for more than half of the state’s revenue. And since everyone pays the same GET tax rate, the budget study shows that lower-income households give up about 14 percent of their earnings to state and local taxes, compared to about 10 percent for households that make over $278,000 a year.

“So that’s why we consider it to be largely regressive because it takes a higher portion of the lower-income families, or those lower-income households’ income, relative to higher income earners,” White said.

It’s a reminder that the economic well-being of Hawaiʻi families is tied to what happens in both our State Capitol and the U.S. Capitol. And having tourism as Hawaiʻi’s top industry makes the state especially sensitive.

“If there’s a downturn in the economy and tax revenue goes down, it then further hinders the state’s ability to be able to respond adequately to bridge those gaps that are being left by the federal government,” White said.