State tax bill could have major impact on Kauaʻi

House Bill 1507 would make the Earned Income Tax Credit (EITC)—which gives a tax break to low- and middle-class families who earn an income—permanent and refundable while raising the capital-gains tax.

The EITC was implemented in Hawaiʻi in 2018, but is set to expire in December 2022. In 2020, some 64,000 Hawaiʻi households claimed the state EITC, totaling almost $21 million in credits.

Making the credit refundable would mean that, when a family’s credit exceeds the amount they owe income tax, the IRS will send them the additional money.

Proponents see the measure as both a means of reducing poverty and generating revenue.

“We want the families at the bottom to have more money to spend in the economy,” said Will Caron, communications director at the Hawaiʻi Appleseed Center for Law & Economic Justice.

“At the same time, we want to collect a little more of the wealth that’s being trapped at the top of the system that’s not circulating through the economy or doing society any good. That can help the state invest in other programs to make life more livable for folks here.”

On Kauaʻi, introducing a refundable EITC could boost the income of 5,452 families by $420 on average, while adding $2,840,179 in economic activity, according to a 2020 report published by Hawaiʻi Tax Fairness, a coalition of community organizations.

The report also states that 41 percent of families on Kauaʻi would get the full benefit of the EITC if it is made refundable.