Tax Cut or Minimum Wage Hike?
Hawaii 4th-Highest Taxes for Low Income Residents
by Andrew Walden
A newly released report shows that Hawaii imposes the fourth highest taxes on the poor. According to the Institute on Taxation and Economic Policy (ITEP), authors of the report, Hawaii’s high tax burden on the poor is due to:
- the GE Tax,
- the inclusion of food in the GE Tax,
- an income tax which hits low income workers, and
- the absence of an Earned Income Tax Credit for low income workers
Obviously this impacts the debate on Abercrombie’s proposal to hike the minimum wage.
Instead of cutting taxes on the poor, Abercrombie proposes to extract more taxes from them by hiking the minimum wage. Because only a small portion of the lowest 20% of Hawaii earners are paid minimum wage, a tax cut would help more persons than a hike in the minimum wage. A tax cut may also provide net benefits to the State due to decreased demand for welfare benefits and other poverty-related services.
The Hawaii Appleseed Center (see below) is urging Legislators to provide tax relief to the poor by enacting an Earned Income Tax Credit and by eliminating or reducing income taxes levied against low wage earners. Since many of Hawaii’s minimum wage workers are actually earning substantially more than minimum wage because they are waiters or other tip-earners, offering tax relief will shift the benefits to the genuinely poor while reducing the pressure on Hawaii’s restaurant industry.
(It should be noted that the ITEP report actually understates the regressive-ness of Hawaii’s tax structure because their report does not consider the effect of Act221 ‘Hi-Tech’ Tax Credits, Historic Home Property Tax Credits, Solar Tax Credits and other scams which are used to cut the taxes of high earners even more than ITEP has calculated.)
Here are some key points from: Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States Executive Summary
States commended as “low tax” are often high tax states for low- and middle-income families. The ten states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas, and Washington. Seven of them are also among the “terrible ten” because they are not only high tax for the poorest, but low tax for the wealthiest.
“The Earned Income Tax Credit improves progressivity in 24 states (but not Hawaii) and the District of Columbia, while nine states undermine progressivity by allowing taxpayers a reduced rate on capital gains income.”
PDF: Breakdown of Hawaii Tax Burden by Household Income
* * * * *
PBN: Hawaii’s poorest residents pay highest share of income in taxes
Low- and middle-income families in Hawaii pay a larger share of taxes than the top 20 percent of earners in the Islands, ranking the state the fourth worst in the nation with a tax system that favors high earners, according to a study released by the Institute on Taxation and Economic Policy. Hawaii ranked behind Arizona, Arkansas and Florida….
The data show that the bottom earners pay the highest percentage of G.E.T., while the top earners pay the most income tax.
The group noted that the Hawaii Legislature is considering several bills this year that would help to reduce the tax burden on low-income families by creating a state earned income tax credit program and a poverty tax credit.
“These bills would go a long way to restoring equity in our state income tax system by implementing the proposed state EITC and poverty tax credit,” Victor Geminiani, executive director of the nonprofit Hawaii Appleseed Center on Law and Economic Justice, said in a statement. “They would help the poorest among us survive the many economic challenges they face to their basic survival while eliminating the anomaly of taxing further into poverty those individuals and families who are earning the state’s lowest incomes.”
Hawaii ranked as the fifth-worst state in the nation in the last report done by the Institute on Taxation and Economic Policy, which was in late 2009.
* * * * *
The Price of paradise for Hawaii’s low-income families
From the Hawaii Appleseed Center November, 2012
The financial pressures on Hawaii’s low-income families are overwhelming. Our state has the highest cost of living and housing in the nation with 75% of our poor families spending more than 50% of their income on housing. We also have the lowest rate for adjusted wages paid in the country while taxing our poor at a higher rate than all but 4 other states. To help our struggling wage earners living in poverty, Hawaii Appleseed has been preparing tax initiatives for consideration in this upcoming legislative session that will provide critical tax relief to low income workers. They include:
Creating a state Earned Income Tax Credit (EITC) patterned after the federal program that has been such a bi-partisan success since its adoption in 1975. The federal EITC program provides a one-time wage supplement to low income wage earners. Twenty three states on the mainland have created a state EITC programs because it puts money directly back in to the pockets of those who need it most while also acting as a wage supplement and an incentive for employment. Click here to find out more about a state EITC program.
Eliminating the income tax charged to wage earners who earn below the poverty level. Currently Hawai’i charges working-poor families higher tax bills than all but four other states and one of only 10 states to levy an income tax on a full-time worker in a family of three making minimum wage ($15,080). Click here to find out more about eliminating income tax for poor wage earners.
* * * * *
SA: Hawaii among most regressive states for taxation
The Hill: Study: State tax systems regressive