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Advocates for low-income families are hoping lawmakers will finally provide what they see as long-overdue tax relief, especially as the Trump administration and a Republican Congress are moving to cut support for the less fortunate.
The state House and Senate separately — and unanimously — passed bills earlier this month to extend and expand tax credits for low-income people while raising taxes on the wealthy.
Both proposals, House Bill 209 and Senate Bill 648, sailed through their respective chambers. The House version was even co-sponsored by Rep. Sylvia Luke, the influential leader of the House Finance Committee. Sen. Jill Tokuda held a hearing for HB 209 on Wednesday, although she’s not planning to make a decision on the bill until Tuesday. It’s the only hurdle the bill has to pass before moving to the full Senate.
Rep. Aaron Ling Johanson and advocates like the Hawaii Appleseed Center for Law and Economic Justice, a local nonprofit, have been pushing for tax reform for years. In the past, the bills have come with expensive price tags.
But this year, supporters are suggesting raising taxes on higher-income earners to pay for the measures. These higher taxes were in place from 2009 until 2015.
The tax proposals have broad-based support, ranging from Unite Here Local 5, a union for service workers; the Sierra Club of Hawaii, a large environmental organization; to the Democratic Party of Hawaii. Nineteen groups have banded together to create the Hawaii Tax Fairness Coalition.
Marti Townsend, who leads the local Sierra Club, said that the organization decided to take a stand on HB 209 because it advanced the organization’s “vision of a more sustainable, livable Hawaii.”
“When people have a safe secure place to live, when they know when their next meal is coming from, when they have the type of financial security that all of us deserve, they are in a better place to make long term environmentally friendly decisions about their lifestyle,” she said.
But lawmakers disagree about the best way to make taxes fairer. The Senate version of the tax fairness bill deleted any reference to tax relief for renters. That bill also says that the poorest Hawaii residents shouldn’t pay any income tax and appropriates $250,000 for tax outreach programs.
Nicole Woo from the Appleseed Center prefers the House version of the bill because she says inequality of taxes in Hawaii is really due to the general excise tax, so removing income taxes on the lowest income bracket isn’t as helpful as providing people with hundreds of dollars in tax refunds.
She also emphasizes that renters in Hawaii pay extremely high housing costs and are long past due for tax relief.
But while there’s disagreement over the specifics of the tax reform bill, there’s still ample opportunity for the entire initiative to fail. In the past, similar bills have made it past both chambers only to die in conference committee during the final weeks of the legislative session. The Chamber of Commerce and Hawaii Association of Realtors have raised concerns that raising taxes on rich people could hurt small business owners.
Senate Ways and Means Committee
House Finance Committee
Aaron Ling Johanson
But Johanson, a Republican-turned-Democrat who introduced HB 209, thinks this year is different. This is the first time he’s seen various tax credits paired with a feasible funding mechanism, he said.
He also says that President Donald Trump’s proposed budget, which slashes funding for many programs that help low-income people, is adding urgency to the need for the state to take action.
“We’re honestly looking a very different federal government, a federal government that’s less sympathetic to anti-poverty initiatives,” Johanson said. “The federal landscape has changed which means we have to respond in kind lest we just be burying our heads in the sand.”
Johanson has for years believed that giving low-income people bigger tax refunds would help them cope with Hawaii’s high cost of living and possibly help prevent people from falling into homelessness.
Hawaii has the highest cost of living of any state and consistently ranks among the highest when it comes to per capita homelessness rates. Hawaii also has the 15th most unfair tax system, according to a study by the Institute on Taxation and Economic Policy.
“As much as we talk about homelessness, we often view homelessness as a silo forgetting that poverty is actually a precursor,” Johanson said. “How do we attack poverty and reduce poverty?”
Woo said that Hawaii places the second heaviest tax burden on low income families of any state. That’s in part because of the state’s general excise tax, which disproportionately impacts poor people.
“We really need to make sure that folks who are struggling can get some money back,” she said. “The general excise tax hits low income families 10 times as hard as people in the top 1 percent.”
As it stands now, HB 209 would expand the state renters’ tax credit to apply to individuals earning up to $40,000 per year and families earning up to $60,000 each year.
The bill would establish a state earned income tax credit mirrored after the federal earned income tax credit, and make permanent the state’s refundable food/excise tax credit that’s supposed to offset the cost grocery taxes.
Tokuda, the Senate money chair, is expected to announce a decision on the bill Tuesday. If she amends the measure to match the Senate proposal, it will likely end up in conference committee, the final period of the legislative session where lawmakers wrangle over details of bills largely behind closed doors.
“Anything can happen in conference, we all know that,” Woo said. “Hopefully (lawmakers) will recognize that there’s a public outcry for these bills.”
But giving bigger tax credits comes at a cost. HB 209 would reinstate higher income taxes for people earning more than $150,000 per year.
Right now, the state taxes anyone earning more than $48,000 each year $3,214, plus 8.25 percent of any amount earned above $48,000.
HB 209 would tax individuals earning more than $150,000 at higher rates. For example, individuals earning more than $200,000 would pay $16,379 plus 11 percent of any amount above $200,000.
Myoung Oh, lobbyist for the Hawaii Association of Realtors, said in testimony that when the rates were previously in effect, Hawaii had the “second highest personal income tax system in the nation.”
“HAR believes that with the recession over and economy rebounding, it is prudent to keep the income tax rate to its pre-recession levels,” he wrote.
“Higher individual tax rates create a drag on the economy primarily because most businesses operate in sole proprietorship, partnership, or S corporation form and are thus subject to the individual income tax rates,” the Tax Foundation of Hawaii testified, adding that it would be better to adjust income tax rates rather than provide tax credits. “Hawaii is already famous for having heavy taxes and a hostile business climate, and this measure would perpetuate this conception.”
The Chamber of Commerce testified that raising taxes on higher-income earners would make it harder for small business owners to reinvest in their companies.
“Business owners already face many restrictions and regulations and this bill is just another challenge for small business owners in Hawaii to survive,” the organization said.
Johanson said he’s sympathetic to the concerns but not persuaded.
“I think that concern is addressed by the fact that from 2009 to 2015 people paid these rates,” he said. “People still managed to make large real estate purchases and people still ran their businesses and had enough capital to invest.”
To him, the bill is a statement that “we’re really trying to reduce poverty and do something meaningful and impactful for our most vulnerable citizens.”