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The Honolulu Advertiser
Posted on: Thursday, February 23, 2006

Excess tax on the poor should be eliminated

Legislative efforts to offer tax relief, particularly to those at the lower end of the income spectrum, received a jolt of support this week through a report out of Washington, D.C.

The Center on Budget and Policy Priorities said Hawai'i ranks near the top in its efforts to tax people of relatively low income. This makes it all the more imperative that the Legislature act on tax relief this session, with an emphasis on easing the burden on those least able to pay taxes.

In Hawai'i, a two-parent family of four begins paying state income taxes when the family income hits $11,500. That's taxing poverty-level income and it's unconscionable.

A number of tax-relief ideas remain alive. They include long-overdue widening of the tax brackets, an increase in the standard deduction and an earned-income tax credit. Gov. Linda Lingle has additionally proposed a number of one-shot tax-relief plans that are focused more on returning the current surplus than reforming the system.

Revising the brackets makes sense. It has been years since they were adjusted, leaving inflation to push struggling families into the tax system.

The earned-income credit is somewhat more controversial but also well worth considering. It would give people at the lower end of the wage spectrum a refundable credit against part of their earnings.

Critics call this a form of social engineering. But an earned-income credit encourages people to work without fear of losing their slight advantage to the tax man.

A good start would be a more aggressive outreach program for the thousands who qualify for the federal credit but fail to claim it. A bill to do just that, Senate Bill 1415, is now in the House.

This study should make it crystal clear to lawmakers that something must be done this year. Taxing the poorest among us is bad social policy that tends to drive people out of the workforce and on to more expensive forms of public support.