Working poor need significant tax relief
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The state is losing ground in its war on poverty, judging by its chronic failure to offer significant tax relief at the lower end of the income scale.
A study conducted for the Center on Budget and Policy Priorities, a nonprofit policy institute, showed the state taking a bigger tax bite out of the poor than all other states except Alabama.
Being No. 2 on such a list surely places Hawai'i on a pedestal in the Hall of Shame — doubly so, given the high cost of living with which residents must cope.
The institute's report noted that the most recent round of reforms last legislative session tended to reward those at higher income levels more than those at the bottom.
This year, lawmakers need to do better, including making changes to the tax system's basic structure aimed at improving its overall fairness. Maybe then there might be less need for annual tweaks and givebacks.
The mandatory tax credit, required in surplus years by the state Constitution, is sure to pass with at least a token amount. But this can't be the principal remedy.
Two other major proposals aimed at lightening the tax burden on the working poor remain in the hopper:
The Lingle administration favors the latter, arguing that only 14 percent of those in eligible tax brackets claim the federal EITC, and that more would benefit from the standard deduction. However, the institute cites federal tax data indicating that the tax-credit claims are closer to 26 percent of those at the lower end of the scale.
Clearly, the EITC has merit, and has proven useful in reducing poverty in other states. It could be paired with some standard-deduction adjustment, as well.
But both devices are based on percentages of federal credits and deductions. Hawai'i needs a tax system that is more inherently fair, rather than piggybacking on federal benefits.
There's still time this session to make further adjustments to tax brackets and rates so that the state can reverse the trend of disproportionately taxing the working poor.
