While Hawaii lawmakers discuss extending the general excise tax surcharge to help pay for the over-budget Honolulu rail project, there’s only one bill still alive in the Legislature that would give low-income residents a tax break.
Senate Bill 555 would increase the food/excise tax credit, which hasn’t been changed since it was established in 2007. The first draft of SB 555 would have increased the credit to a maximum of $100 for taxpayers who make less than $5,800 per year, while tax filers with incomes less than $57,500 would have been eligible for a $30 credit.
However, the House Finance Committee amended the bill by blanking out the dollar amounts of the tax exemptions, pending negotiations that are taking place in conference committee this week. The bill is scheduled to be heard on Wednesday at 2 p.m.
“This is obviously something that affects all families,” said Sen. Will Espero, who introduced the bill. “We want to pass this bill.”
The Hawaii Appleseed Center contends that because of inflation, the food/excise tax credit should be increased to $96 for households with incomes up to $56,500.
Right now, tax filers with a federal adjusted income of less than $5,000 per year can receive $85, while those with incomes less than $50,000 can receive $25.
The food/excise credit is “incredibly important because it’s a credit that really applies to a large block of different populations, including individuals who are disabled and seniors that are living on their own,” Scott Morishige, executive director of PHOCUSED, told Civil Beat.
The measure would cost the state $6.5 million starting in fiscal year 2017, according to the Hawaii Department of Taxation’s testimony.
“The challenge now at this stage is all about fitting it in … the budget,” Espero said.
SB 555 is the only bill left that would help low-income taxpayers balance out the potential extension of the GET surcharge.
For yet another year, most of the bills to give low-income residents tax relief died. Among them were a bill that would have increased the low-income rental housing tax credit; a bill that would have established an earned income tax credit; and another bill that would have reduced or eliminated the state income tax liability for taxpayers with incomes less than 125 percent of the federal poverty guidelines.
Last year, a bill was introduced to increase the food/excise tax credit but it died when it wasn’t scheduled by the House Finance Committee. A similar bill never made it to the Senate Ways and Means Committee.
Food costs for a Hawaii family of four are 68 percent more than what they are on the mainland, according to the U.S. Department of Agriculture’s Thrifty Food Plan. Meanwhile, Hawaii has the highest cost of housing in the nation, with almost three-quarters of extremely low-income people spending more than half of their income on rent, according to the National Low Income Housing Coalition.
As rents have skyrocketed, the state rental housing tax credit has been stuck at $50 per dependent for nearly 35 years. Several bills that would have increased the rental housing tax credit died in the House and Senate this session.
Jenny Lee, an attorney with Hawaii Appleseed Center, said Hawaii’s low-income residents don’t only suffer from the high cost of living – they’re faced with the burden of Hawaii’s regressive tax system.
According to the Institute on Taxation and Economic Policy’s Tax Inequality Index, Hawaii has the 15th most unfair state and local tax system in the country. The bottom 20 percent of households in Hawaii pay over 13 percent of their income in state and local taxes, while the top 1 percent pays around 8 percent, according to the ITEP report.
Lee blames that on the general excise tax.
Because the GET applies to nearly all goods and services, the tax burden falls most heavily on low-income households that must spend a larger share of their income on basic necessities, she said.
“We’re taxing people deeper into poverty,” Lee said.
Espero said that the ideal situation would be to remove the GET from food altogether.
However, the GET is the largest source of revenue for the state, generating approximately half of the state’s income, according to the Federation of Tax Administrators.
Lee and Morishige said that increasing tax credits could help Hawaii develop a more progressive approach to taxes.
“(Tax credits) really (have) a big impact on the the community and speak to income inequality,” said Morishige. “I think that one possible outcome is that it would encourage people in the community to file their taxes.”
But so far, legislators have been hesitant to increase tax credits or add new ones for people in poverty, Lee said.
“There is a lot of resistance and serious vetting of any kind of new credit,” Lee said.
For one, tax credits carry a high price tag for state revenue. The state spent $4.3 million on the low-income rental housing credit for more than 41,000 taxpayers in 2012, which is latest year for which data is available.
Espero said that any bill that deals with taxpayers’ dollars is highly scrutinized. The food/excise tax credit for low-income taxpayers is predominantly supported by lawmakers, but whether or not the bill will pass the Legislature depends on perspectives of the chairs in conference committee and the funding left in the budget, Espero said.