Introduction

The Earned Income Tax Credit (EITC) is a special tax credit designed to let working families keep more of the money they earned through their work. It is a critical tool for lifting workers who are paid low wages—and especially those with children—out of poverty, and it is a highly effective economic stimulus as well, contributing up to $1.24 in economic activity for every $1 returned to workers as part of the EITC.

Many of the workers eligible for an EITC do not earn enough to cover all their basic needs, including food, housing and healthcare. The credit helps these workers provide their families with the basics and makes the tax system more equitable in the process. Research on the EITC shows that the credit contributes to long-term economic and health gains for families.

Spurred by the success of the federal EITC, first enacted in 1975, Hawaiʻi and 29 other states (in addition to Puerto Rico and the District of Columbia) have created their own state EITC programs. All together, these state and federal EITC programs have benefited millions of workers from all races, ethnicities and walks of life. 

People of color—who are more likely to earn low wages in Hawaiʻi due to structural and historic barriers to economic security caused by colonialism and systemic racism—therefore tend to experience the greatest benefit from the EITC program, making it an effective anti-racist policy as well. 

The positive impacts of the EITC are particularly clear in Hawaiʻi, where the high cost of living has made it difficult for working families to achieve lasting economic security. Hawaiʻi’s cost of living is the highest in the nation, and has only increased throughout the most recent economic recession and subsequent shock caused by the COVID-19 pandemic. 

In May of 2020, more than one-in-five Hawaiʻi workers were unemployed, and this rate has yet to return to its pre-pandemic level. In December 2021, one-third of Hawaiʻi adults lived in households that struggled to afford their usual household expenses.

Unlike the federal EITC and the credits of most of the states with EITC programs, Hawaiʻi’s tax credit has remained non-refundable since it was implemented in 2018. This means that the workers paid the lowest wages are unable to take full advantage of the Hawaiʻi credit.

Given the continued hardship faced by these low wage workers, it makes little sense to continue withholding the full value of the state credit from the families most in need of financial assistance. It also makes little sense from an economic standpoint given the boost in spending the economy enjoys when low-wage workers have more money to spend. The boost provided by a refundable state EITC to families is necessary now more than ever to realize a full economic recovery in the islands. 

In 2020 alone, 64,000 Hawaiʻi households claimed the state EITC, totaling almost $21 million in credits. First claimed in 2018, the state EITC expires after 2022 unless Hawaiʻi legislators act to make the credit permanent, ensuring the positive impact of the state’s EITC continues into the future. Failing to do so, on the other hand, will only deepen the economic insecurity of many working families. 

To create a stronger economy and a more equitable tax system, Hawaiʻi state lawmakers should pass legislation to make the state EITC refundable and to make the credit permanent during the 2022 legislative session.