Hawaiʻi tax Fairness

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REFORMING THE STATE TAX SYSTEM WILL GO A LONG WAY TOWARD ADVANCING ECONOMIC JUSTICE.

One of the few victories in the 2017 legislative session was the passage of a Tax Fairness package that expanded the low income-household renters' income tax credit based on adjusted gross income and filing status., established a state earned income tax credit, restored the income tax rates for high income brackets that were repealed on 12/31/15 and removed the sunset for the refundable food/excise tax credit. But there is more work to be done, and YPDA Hawai‘i's Economic Justice Action Committee will need your help to continue progressive reforms of the tax system.

Background:

Hawai‘i’s working poor families pay higher tax bills than those in all but three other states, and the tax rate for low and moderate income households is among the highest in the nation. The poorest taxpayers pay, on average, approximately 13 cents of every dollar of income in taxes, while those earning more than $400,000 pay closer to 8 cents on every dollar of income. Hawai‘i has the second highest taxes on people in poverty. The lack of adequate credits and exemptions means that the personal income tax actually pushes some low-income working families deeper into poverty.

Proposed changes to the Low-Income Household Renter’s credit would increase it’s value to make up for ground lost to inflation during decades of neglect. Additionally, these changes will improve the credit’s structure to implement tax policy best practices, allowing for a gradual credit phase-out as household income increases, and tailoring the credit to better focus on those most in need.

A Working Family Credit is a proven way to foster economic prosperity, providing opportunities for working families to climb the economic ladder and strengthening local businesses. Based on the federal Earned Income Tax Credit (EITC), the Working Family Credit is a tax credit that reduces or eliminates workers’ tax liability. The EITC has been praised as the most effective anti-poverty program in the U.S.; has been endorsed by every president since Richard Nixon; and continues to receive broad, bipartisan national support. Both Democrats and Republicans have hailed it as the most effective anti-poverty tool in the nation. Eighty-six percent of Hawaiʻi residents have indicated support for a Working Family Credit which, like the EITC, would let low and moderate income working families keep more of what they earn.

As Hawaiʻi families struggle to put food on the table, the General Excise Tax (GET) is effectively another hungry mouth to feed. The GET taxes food and other life necessities, placing a significant additional financial burden on people who are working hard to make ends meet. Since 2007, Hawaii has had a Refundable Food/Excise Tax Credit designed to help ease the tax burden on basic necessities. To keep up with the continuously rising cost of living, the credit should be increased. We should adopt a credit that keeps up with future cost of living increases so that the tax burden on basic necessities does not increase year after year as living costs go up.

At the end of 2015, the upper-level income tax rates for Hawaiʻi’s highest earners (e.g., joint filers with taxable incomes of $300,000 or more per year) were allowed to expire. The 2017 tax package reinstated those top tax rates, helping to balance Hawaiʻi’s tax system and raising about $48 million per year—more than enough to pay for the Working Family Credit, Renters’ Credit and Food Credit that are necessary to provide tax relief for our state’s low-income and working-class families.

Approximately 93 percent of the revenue raised by reinstating the upper-level tax rates will be paid by the top 1 percent of Hawaiʻi earners. Doing so increases the fairness of our tax system without breaking the bank for high earners. For example, under the upper-level rates, a joint-filing household making $400,000 per year would pay just 3 percent more of their income toward taxes–about $1,250 more per year.

2018 BILLS WE SUPPORT

TBD

Additional Resources

The Hawaii Credit for Low Income Household Renters

The Hawaii Appleseed Center for Law & Economic Justice