Legislature: The poor need your tax help
By Andrew Aoki and James Koshiba
In her State of the State address, Gov. Linda Lingle said: "The bottom line is that we are collecting income taxes from people who simply can't afford to pay them." She was right. In its latest report on state income taxes, the Center on Budget and Policy Priorities finds that Hawai'i continues to be one of the two or three worst states for taxing the incomes of the poor.
This is just part of the problem. Not long ago, the Institute on Taxation and Economic Policy found that Hawai'i's poorest pay 10 percent of their incomes in general excise taxes while the richest pay only 2 percent. So the other bottom line is that we are disproportionately collecting general excise taxes from people who simply can't afford to pay them.
Who "simply can't afford" taxes? Imagine shopping for just enough food so your family isn't hungry, renting the most basic housing, getting minimal healthcare, childcare and other basic necessities. The total real cost of this barebones existence is called the "self-sufficiency standard" — the amount you need to earn is sometimes called a "living wage."
When the self-sufficiency standard was last calculated in 2002, a single person in Honolulu needed about $18,000 per year; a single parent with a preschooler needed $31,000; a couple with two school-age children needed $37,000.
Roughly 100,000 taxpayers plus their dependents live below the self-sufficiency standard in Hawai'i. For these people, taxes only create a greater dependence on others to survive. Ironically, this includes an increased dependence on tax-funded government programs.
Thus, tax relief for the poor makes perfect public policy sense.
The governor is proposing permanent tax relief that will cost about $150 million per year. Not all of it would go to those who can't afford taxes, but the package does contain sound ideas such as increasing the standard deduction and a refundable food/medical tax credit. Unfortunately, some legislators have been unwilling to consider these ideas.
Likewise, the governor has been unwilling to consider the Legislature's proposal for a refundable earned income tax credit.
Republicans and Democrats in 18 other states have established an earned income tax credit because it provides tax relief in a way that rewards work over welfare. It provides significant refunds to low-income earners that can be used to pay off debt, invest in education, start a business, start a savings account, or otherwise move toward economic independence. Think of it as the one policy for low-income earners that is akin to the 529 plan, the 401k, the mortgage interest deduction and countless other tax incentives for higher-income people to earn and save.
An approach that combines an earned income tax credit with a more focused version of the governor's proposals would work best. We sincerely hope that Hawai'i's lawmakers will unite in this cause and reflect the values of Hawai'i's people.
We believe that most people in Hawai'i would always help those in greatest need before they help themselves. This is not about charity. This is about rediscovering Hawai'i's tradition of making public policy that honors the respect we have for one another.
Andrew Aoki and James Koshiba are co-founders of 3Point, a Hawai'i-based, public-interest research and consulting firm. They wrote this commentary for The Advertiser.