Hawaii residents for years have been jabbed with a two-pronged economic spear, many to the brink of poverty.

Stuck with indiscriminately high taxes on one end and the nation’s highest cost of living on the other, thousands of middle-class families are a paycheck away from homelessness.

State lawmakers want to give the working poor some relief this legislative session through targeted tax credits, rent subsidies and upping the minimum wage. The proposals will cost millions of dollars, but are expected to pay dividends in the long run.

Several big bills have emerged without major bruising at the committee level thus far.

Some of the legislation stands a better chance at passing this year than any previous effort in recent history, advocates say. But it will likely all come down to the final days of the session when lawmakers meet in conference and make deals out of the public’s sight.

House Bill 385 and its Senate companion, SB 301, would establish an earned income tax credit and require the Department of Human Services to offer poor Hawaii residents a basic financial education.

Twenty-five other states already offer an EITC, which supplements the federal EITC.

The federal credit varies based on how much money you make, how many kids you have and whether you’re married. For instance, a couple with two children who earned less than $47,000 last year could receive a credit up to $5,236. If this amount is higher than how much they owed in taxes, they would receive a tax refund.

“With HB385 and the establishment of a refundable EITC, we have an opportunity to help Hawaii families escape the crippling effects of poverty and change their financial family tree for generations to come,” said Laura Kay Rand, interim executive director of PHOCUSED, a coalition that serves Hawaii’s needy.

“The EITC will support families who are working hard toward self-sufficiency by reducing the tax burdens of the low-income population through an incentive for employment,” she said in her testimony before the Senate Human Services Committee last week. “Since most people who receive federal EITC refunds immediately put them into use through spending on day-to-day needs, such as food and shelter, the EITC also supports our local economy.”

Hawaii wants to give its residents an extra boost by tacking on a certain percent to the federal credit, which is how other states do the EITC. This number is left blank for now, but long-time supporters of a state EITC have some suggestions.

The Hawaii Appleseed Center for Law and Economic Justice wants lawmakers to set it at 20 percent. But the nonprofit’s executive director, Victor Geminiani, says he’d be fine with a foothold of 5 percent that the state could increase over time.

Geminiani said at 10 percent, the center estimates it would cost the state $19 million in lost tax revenue. He said the tax department puts it closer to $25 million.

This would be on top of the $3.2 million DHS estimates it would cost to provide financial literary services as proposed in the bill.

But Geminiani said studies show people spend money received from EITC programs on bills and basic needs that circulates through the economy.

“For every dollar spent on state-level EITC, an additional $1.67 is generated in new earnings for the state,” he said.

Rep. John Mizuno, who introduced HB 385, said it would be money well spent. He said the EITC would help residents build their nest egg so they can get out of poverty.

“We actually think that this is better than raising the minimum wage,” he said. “It really gets the money to those lower-income bracket families that are needy.”

Minimum Wage Trade-Off?

Geminiani said studies show the EITC helps the working poor far more efficiently than increasing the minimum wage.

The Legislature is moving forward with two bills that would increase the minimum wage more than a dollar over the next few years. HB 1028 would up it from $7.25 an hour to $9 by 2017. And SB 331 would increase it to $9.25 an hour by 2016.

President Barack Obama has proposed increasing the federal minimum wage from $7.25 to $9 an hour by 2015, but it’s unlikely to pass Congress.

While Mizuno would be willing to compromise the minimum wage bill to get the EITC legislation passed, Geminiani said ideally both would be implemented simultaneously.

“I would argue that if we don’t find an answer for these individuals, we’re going to continue to pay for the other programs they use,” Geminiani said.

He said businesses can help by paying a higher minimum wage and taxpayers can help by paying for the EITC.

“It’s a nice complementary set of programs,” Geminiani said.

A University of Hawaii Economic Research Organization report released in February says raising the minimum wage will prove successful in improving living standards in Hawaii only if a large proportion of minimum wage earners are members of poor households.

The report says increasing the minimum wage is largely a symbolic gesture by policymakers, noting the EITC’s superior effectiveness in supporting working families despite its higher administrative costs.

The Senate Human Services Committee passed HB 385 unamended last week; it heads to Ways and Means next. The House Human Services Committee deferred SB 301 until Tuesday.

Geminiani said he is also pushing for Seante Bill 98’s passage. The so-called poverty bill would effectively eliminate income taxes for Hawaii’s poorest families.

More than 250,000 people in Hawaii live in poverty, according to Census Bureau data that factors in the state’s high cost of living.

Senators amended the bill last month before passing it to the House. Now, the bill eliminates refundable tax credits for food and general excise taxes.

“We have real problems with that,” Geminiani said. “It penalizes those at the lowest level.”

For instance, he said a senior citizen living on Social Security would lose tax credits for food.

The bill passed the House Human Services Committee last week unamended; it heads to Finance next.

Rent Subsidies, Affordable Units Sought

While lawmakers are working to get more money in the hands of Hawaii’s poorest families through tax credits, they also want to reduce their biggest monthly cost: housing.

The cost of shelter in Hawaii is the highest in the nation, with 75 percent of those at or below the poverty level spending more than 50 percent of their income on housing, Geminiani said.

Sen. Suzanne Chun Oakland said the state needs to develop thousands of new homes over the next few years. She said Senate Bill 515, which she introduced, would address the housing issue on a number of levels.

Aside from providing funding for substance abuse treatment and mental health services, the bill budgets millions of dollars for rental assistance programs and housing projects.

Nonprofits testified that 13,000 units are needed by 2016 to meet the demand for affordable rental units. There are projects lined up, but insufficient funding to break ground, said Betty Lou Larson, Catholic Charities Hawaii legislative liaison.

The state Housing Finance and Development Corporation says its Rental Housing Trust Fund received $37 million in requests last year but was only able to commit $20.7 million to eligible projects due to limited resources.

“This was sufficient to fund the development of only 317 of 547 potential affordable rental units, therefore 230 potential units were not developed,” HFDC Executive Director Karen Seddon said in her testimony on SB 515.

The bill crossed over to the House March 5, but no hearing has been scheduled for it yet.

There are several blanks in the tax credit and housing bills that need to be filled in before they could become law. The numbers that lawmakers decide to etch in those spaces over the coming weeks will likely determine whether they pass.

Geminiani said he is encouraged that the Legislature is seriously considering tax policy this session.

“It’s healthy some of these issues are being asked and successful models on the mainland are being considered,” he said.

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