Our state often has the luxury of being a few years behind trends that develop on the mainland. This lag can give us time to prepare for change while fashioning solutions based on lessons learned elsewhere.

Unfortunately, this is not the case when it comes to the overwhelming impact of poverty on so many of our residents. We are in the midst of a crisis. Our state has the highest rate of homelessness and the ninth highest rate of poverty in the nation. One out of every five of our keiki is living in families with incomes below the poverty guidelines while the rate of poverty among seniors is the second highest among the states.

The cost of stabilizing and assisting families to overcome the impact of poverty is staggering. The annual budget for the Hawaii Department of Human Services is close to surpassing that of the Department of Education and having the largest departmental budget in the state.

It’s time that we begin targeting poverty with efficient and effective strategies that will directly impact the level of poverty and its consequences throughout our island state.

Some of the best solutions available involve adjusting tax policies to directly infuse limited funding into low-income households while also improving the equity between the lowest and highest income households in the state. Largely as a result of the highly regressive General Excise Tax, which provides more than half of the state’s budget, households with incomes in the bottom 40 percent are currently paying 13 cents of every dollar in income toward taxes, while those in the top 20 percent are paying about 8 cents. The combined impact of the GET and relatively heavy income tax rates levied on our poorest residents has resulted in Hawaii being ranked as the fourth worst state in the nation for taxing people in poverty.

Relatively straightforward remedies are available to begin targeting poverty through modifications in tax policy. A variety of bills are being considered during the current legislative session to do just that. Each is based upon sound policy, and each will efficiently direct scarce resources to make a major impact on the economic resilience of low-income households throughout the state.

Two of the modifications include two tax credits, the low-income household renters credit and the food/excise tax credit, which address the inherent inequalities of our system and the need to assist our low-income households ameliorate our high cost of living. The low-income household renters credit seeks to remedy the inequitable treatment of renters versus landlords in our tax system. Landlords are able to deduct mortgage interest, maintenance and property taxes from their income taxes and pass these expenses along to the tenants. Although they are paying for these expenses, renters do not receive any similar deductions or credits.

The renters credit has not been adjusted for inflation since 1981. Similarly, the food/excise tax credit is based on reducing the inherently regressive GET, but the credit has not been adjusted for inflation since 2007.

Currently before the Legislature are bills that would also eliminate any state income tax liability for low-income workers whose households have income below the poverty guidelines and also create a state Earned Income Tax Credit (EITC). Because of the low-income threshold for taxation in Hawaii, we are actually taxing households that area already in poverty even deeper into poverty. This makes no sense since we are spending enormous amounts to alleviate the impacts of poverty. We should end this counterintuitive practice.

A state EITC would replicate similar successful programs already adopted in 26 other states. The EITC has been supported by virtually all political leaders from both parties because it efficiently targets low-income wage earners by providing income supplements to bolster low wages paid by some employers, while also functioning as a work incentive. The federal EITC has been heralded as the best domestic poverty program in existence today by political leaders on both sides of the aisle, local media, and Economic Research Organization at the University of Hawaii (UHERO).

The total cost to implement these four modifications would be about $77 million. These expenditures would immediately strengthen the economic vitality of low-income households, begin reversing the alarming and growing rate of inequality by lifting thousands of households out of poverty, create a strong incentive for low-wage workers, all while avoiding the costly programs of health and human service programs aimed at alleviating poverty but are often too little and too late.

Tax relief and the restoration of tax equity are simply the most efficient and effective way of targeting poverty. During this time of relative prosperity for our state, we must act decisively to help lift up those in greatest need.

About the author: Victor Geminiani is the Executive Director of Hawaii Appleseed Center for Law and Economic Justice.


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