Taxes & Budget
Hawaiʻi continues to make progress in making its tax system more fair toward low-income workers by letting them keep more of what they earn. Tax credits help offset the high cost of living in Hawaiʻi, alleviating poverty and stimulating the consumer economy all at the same time. Tax credits are less burdensome to apply for than government benefit programs.
With Hawaiʻi’s refundable Earned Income Tax Credit (EITC) expanded to 40 percent of the federal credit, Hawaiʻi has one the strongest EITCs in the nation, behind only California, Maryland, and Washington D.C. But many families continue to struggle, and because the EITC depends on work, not all residents qualify. Other means of delivering targeted economic relief to struggling families must be established.
In order to equitably fund the critical investments in our keiki and our communities that Hawaiʻi needs, assessing a proper tax rate on corporations and the wealthy is a necessity. Hawaiʻi’s current tax rates exacerbate inequality taking too much from working families, and not enough from the rich and big corporations.
2025 Legislative Priorities
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HB694/SB1053 (Kapela/Rhoads): Establishes a refundable child tax credit. Applies to taxable years beginning after 12/31/2025.
The federal child tax credit (CTC) provides financial assistance to low- and middle-income parents with children. The CTC reduced child poverty in the U.S. by 40 percent when the credit amounts were temporarily expanded in 2021, during the COVID-19 pandemic. Previously, the credit amount had been $2,000 for each child under the age of 18. This amount was boosted to $3,600 for each child aged 5 and under, and $3,000 for each child aged 6 to 17.
The expansion ended after 2021 and, in 2022, the national child poverty rate more than doubled from 5.2 percent to 12.4 percent. Hawaiʻi can fill the gap the end of the expansion left by creating its own, state-level CTC. The proposed Hawaiʻi CTC would be worth $650 for every child under 18, and would reach around 162,000 local families. This program would come at a cost of just $84 million per year.
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SB349 (Rhoads): Taxes capital gains income at the same rate as ordinary income.
HB476 (Sayama): Increases the capital gains tax threshold to nine percent. Increases the alternative capital gains tax for corporations to five percent.
Hawaiʻi can better support low-income working families by changing how it taxes income from investments, called “capital gains.” Currently, Hawaiʻi taxes capital gains at a lower rate (7.25 percent) than regular income (up to 11 percent for the highest earners). This mostly benefits wealthy households that have a much larger share of income that comes from investments.
Taxing capital gains at the same progressive rates at which regular income is taxed could raise $88–132 million each year. This added money could be used to fund programs and tax credits that help families deal with the high cost of living, such as the state Child Tax Credit.
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HB182/SB704 (Lamasao/San Buenaventurea): Permanently increases the state earned income tax credit to 50% of the federal earned income tax credit. Applies to taxable years beginning after 12/31/2024.
HB183/SB1013 (Lamasao/Lee): Authorizes each qualifying individual taxpayer to claim an additional credit if the taxpayer claims any dependent under the age of 18.
Hawaiʻi’s Earned Income Tax Credit was first established in 2017 and has already been expanded to 40% of the federal EITC thanks to the efforts of advocates like you. New proposals this year would expand the credit further, strengthening one of our most successful anti-poverty tools at a time when working families are struggling to meet their basic needs.
Get involved with the Hawaiʻi Tax Fairness Coalition by signing up for tax policy and advocacy updates.
As local families continue to leave Hawaiʻi due to the high cost of living, Hawaiʻi Appleseed stresses the urgency for additional legislative action to help those at risk of homelessness.