State’s poor face nation’s second-largest tax burden

The least wealthy income earners in Hawaiʻi pay the second most in taxes of any state in the union, according to an analysis of tax systems across the country.

The study by the Institute on Taxation and Economic Policy found that the poorest residents in Hawaiʻi pay 68 percent more in taxes as a portion of their income compared with the state’s wealthiest residents.

“It’s disappointing,” said Beth Giesting, director of the Hawaiʻi Budget & Policy Center. “There’s room for upper-income people to pay a lot more in taxes.”

The study, “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” analyzed tax systems, looking at such things as personal and corporate income taxes, property taxes, sales and excise taxes.

As it did for 45 other states, the study labeled Hawaiʻi’s tax system as “regressive” because of its tax burden on the poor.

“When tax systems rely on the lowest-income earners to pay the greatest proportion of their income in state and local taxes, gaps between the most affluent and the rest of us continue to grow,” the study says.

Giesting said the problem in Hawaiʻi is the state’s reliance on the general excise tax. The GET, as it is called, adds to the cost of everything from groceries to rent.

The result, she said, is families in the lowest tax brackets spend 10.5 percent of their incomes on the GET, compared with those in the top 1 percent, who spend just 1.2 percent of their earnings.

Nicole Woo, senior policy analyst with the Hawaiʻi Appleseed Center for Law & Economic Justice, said there are a number of steps the state can take to help decrease the effective tax rate gap, including eliminating tax liability for workers in poverty.