A new report says Hawai'i's state income tax is among the harshest in the U.S. for low-income families because it levies taxes on people who are below the federal poverty threshold.

The Center on Budget and Policy Priorities released a report yesterday saying Hawai'i had the second-highest income tax ($409) in the country for a two-parent family of four having income at the federal poverty line of $21,203 in 2007.

The state had the highest taxes for a single-parent family of three making the federal poverty threshold of $16,530.

"In some states, families living in poverty face income tax bills of several hundred dollars," said the report, noting Hawai'i was one of them.

"Such amounts can make a big difference to a family struggling to escape poverty."

Hawai'i Department of Taxation Director Kurt Kawafuchi said Gov. Linda Lingle has been trying for years to cut taxes for low-income workers with a limited amount of success, including getting a credit for food purchases. Among the failed efforts he said was trying to increase the standard deduction, and indexing tax brackets and standard deductions for inflation.

"We've tried for six years," Kawafuchi said. "We got some modest relief."

Census Bureau estimates show Hawai'i had a relatively low number of residents living below the federal poverty line last year. About 8 percent of Hawai'i residents fell in this category compared with the 13 percent national average. Only Connecticut and New Hampshire had lower rates.

Still, the issue is a serious one for families and individuals who are scraping by. Nationally, federal income taxes for low-income families were scrapped during the Reagan Administration in 1986, according to the Center on Budget and Policy.

The issue isn't a new one for the state, and the regressiveness of Hawai'i's tax system was the subject of a study by the state Tax Review Commission in 2006. The commission's recommendations included one suggesting the state study and evaluate abolishing state personal income taxes.

In recent years, there have been attempts to alleviate the tax burden and the report notes Hawai'i has made some improvements. It also includes a quote from Lingle in its conclusion noting the importance of tax relief for people who don't make much. Lingle it noted, proposed tax cuts for low-income families in 2006, saying the state was collecting income taxes from people who simply couldn't afford to pay them.

"A number of states would do well to follow her lead," the report said.

Changes made in 2007 for Hawai'i included raising the standard deduction for married couples to $4,000. The Center on Budget and Policy's report said Hawai'i has also expanded its tax brackets and raised tax thresholds to help reduce taxes on low-earning families.

The report noted that more progress cutting taxes for low-income workers can be made even if states face tough financial times. It said they should consider enacting small improvements or phasing in changes over time.

But getting more relief for low-income workers may fall victim to the stiff financial challenges faced by Hawai'i's state government. The state Council on Revenues lowered its outlook yesterday, increasing the need to cut the state budget or for it to find new revenue sources.

"It's very hard to ask for tax relief when the revenue picture keeps dropping," Kawafuchi said. "It's hard to find money for tax relief."