Introduction

Tax credits for working families—like the Child Tax Credit and Earned Income Tax Credit—can serve as lifelines to children and families with the lowest incomes and greatest needs. Over the long-term, these credits can reduce racial and economic inequities and have a dramatic impact on children’s outcomes. In fact, these tax credits have been found to improve child and maternal health and school achievement.

Recognizing the success of the federal child and earned income tax credits, a growing number of states—including Hawaiʻi—have adopted their own state-level credits. Having strengthened our state’s Earned Income Tax Credit (EITC) in 2022, Hawaiʻi lawmakers now have the opportunity to create a proven, complementary state-level Child Tax Credit (CTC). Twelve other states have already created separate CTC programs for their residents.

This report examines the impact that a state-level Child Tax Credit would have on Hawaiʻi’s children and families, drawing in part from the growing body of research supporting the federal credit, which reduced poverty by 40 percent between 2020 and 2021. Based on these findings and other state policy approaches, the Hawaiʻi Budget & Policy Center recommends the creation of a state-level CTC—or “Keiki Credit”—that would make raising a family in Hawaiʻi more affordable, especially for those with low incomes.

We propose three options for a state CTC, costing between $84 million and $130 million. Working in concert with Hawaiʻi’s newly refundable EITC, a Keiki Credit would help Hawaiʻi’s families meet the unique challenges associated with raising a family in Hawaiʻi where households face increasingly higher costs for housing, food, fuel and child care. Furthermore, the creation of a Hawaiʻi Keiki Credit would represent a key investment in our future generations that will set them up for economic success throughout their lives.