Despite tax legislation last year, Hawai'i still imposes heavy burdens on low-income, working families who continue to have one of the country's highest income tax bills, according to a report released yesterday by the Center on Budget and Policy Priorities.

Jason Levitis, the author of the study for the nonprofit, nonpartisan research organization and policy institute, called last year's efforts in Hawai'i "poorly targeted tax reform."

While other states passed tax cuts last year that help poor families, Levitis said, Hawai'i ended up giving healthier tax cuts to wealthier families over the "working poor." He added, "Hawai'i is on track to levy the highest income tax in the nation for the poor."

The report quoted Gov. Linda Lingle's State of the State speech in which she said, "The bottom line is that we are collecting income taxes from people who simply can't afford to pay them."

Hawai'i remains one of six states that levy an income tax on families with incomes less than three-quarters of the poverty line, according to the study.

After Alabama, Hawai'i has the country's highest tax burdens for low-income families, according to the report:

A two-parent family of four at the federal poverty line of $20,615 owes $546 in state income taxes for 2006. A single-parent family of three with income at the federal poverty line of $16,079 owes $401.

In Hawai'i, the income level that families begin owing taxes for the 2006 tax year is $11,500 for a two-parent family of four; $9,800 for a single-parent family of three.

However, unlike some states, Hawai'i has relatively low property taxes, which could lower the amount of the overall taxes paid by low-income residents who may own property.

Last year, legislators settled on tax changes aimed at having the broadest reach on the poor and middle class. Among other things, they expanded income tax brackets by 20 percent and increased the standard income tax deduction to 40 percent of the federal level.

This session the Center on Budget and Policy Priorities cited bills that would create a state earned income tax credit based on a percentage of the existing federal EITC.

One bill remains alive that would offer a Hawai'i EITC "for working families even if they do not have a tax bill per se," said State Sen. Gary Hooser, D-7th (Kaua'i, Ni'ihau), who has been pushing for a state EITC for three years.

The maximum federal EITC benefit gives families $4,536 for specific situations, said Brent Dillabaugh, deputy director of the Hawai'i Alliance for Community Based Economic Development.

Hawai'i families who claim the federal EITC typically receive about $1,500, he said.

This year, legislators have discussed giving low-income residents a state EITC benefit of 20 percent of the federal EITC, which would result in an additional maximum benefit of $907, Dillabaugh said.

But if an EITC bill passes the Legislature, Dillabaugh believes the percentage would be lower than 20 percent.

On the federal level, Hooser said, both Democratic and Republic administrations have supported and improved the EITC because "it rewards work. If you don't work, you're not going to qualify for the tax credit."

But only 14 percent of Hawai'i residents who earn below $30,000 and $20,000 claim the federal EITC, said Kurt Kawafuchi, interim state tax director.

"So we believe, as the governor has proposed, that better tax policy is to help a much larger percentage of those people," he said.

Lingle's proposed $346 million tax-cut plan over two years includes a provision to increase the standard income tax deduction to 75 percent of the federal level.

Reach Dan Nakaso at dnakaso@honoluluadvertiser.com.