Creating a State Earned Income Tax Credit

Cutting taxes to strengthen the economy and boost Hawaiʻi’s families: A refundable state Earned Income Tax Credit.

January 2016

Executive Summary

Building a stronger Hawaiʻi for businesses and residents means creating more opportunities for working families to climb the economic ladder. The Earned Income Tax Credit (EITC) is a proven tool for fostering economic prosperity.

The federal EITC is a tax credit that reduces or eliminates workers’ tax liability. It has been praised as the most effective anti-poverty program in the U.S. It has also been endorsed by every president since Richard Nixon, and continues to receive broad, bi-partisan national support.

Twenty-six states and the District of Columbia offer a state EITC to help families keep more of their earnings. The credit has been championed by families and businesses alike in these states because it gives a much-needed break to working families struggling to get by on low wages, and boosts local economies across the state.

Now is the time for Hawaiʻi to invest in its residents and businesses by creating a state refundable EITC that puts dollars back into workers’ pockets and into the cash registers of local business.

The EITC helps struggling families. Working families in Hawaiʻi have seen their purchasing power shrink over the years. High rents, stagnant wages, and increasing energy and food costs mean a family’s dollar has to stretch further every year just to meet basic needs. A state EITC would put thousands of dollars back into the pockets of working residents with far-reaching benefits for both parents and children.

The EITC helps local businesses. When working families struggle, businesses suffer. By helping workers keep more of their hard-earned wages, the EITC directly benefits local businesses through increased consumer spending. Additionally, encouraging more financially stable families indirectly supports local businesses in the form of more reliable employees with strong incentives to work more.

The EITC is an efficient tool for helping working families. The EITC is the most effective anti-poverty program in America because it targets working families in need. The program efficiently delivers support through tax refunds, a process that requires minimal administrative costs.

A state refundable EITC is an affordable, targeted reform that encourages work and strengthens local economies. Hawaiʻi’s legislators should adopt the policy for the benefit of our businesses and working families.