State moves to ease tax
burden on poorest
residents

The proposals include a Hawaii
tax credit and revised brackets

HONOLULU » In a state where a salary of $40,000 barely keeps the wolves from the door, the powers that be finally seem to be in agreement that it's time to intervene.

Both lawmakers and the governor have submitted measures this year to ease the tax burden on those who have yet to benefit from Hawaii's flush economy.

Two of Gov. Linda Lingle's bills would raise the standard deduction used by taxpayers who do not itemize their income tax returns and give back up to $55 per person to families making less than $40,000.

Another bill in the House would implement a state version of the federal earned income tax credit, which refunds some $36 billion annually to low-income families.

Senate President Robert Bunda is behind a bill that would revise Hawaii's tax brackets, which currently tax even people who qualify for public assistance.

Most advocates of this year's selection of income tax bills agree that behind the shared interest in helping out those who are struggling financially is a growing economy that has filled the state's coffers.

That money has enabled lawmakers to take a more serious look at giving money back to taxpayers.

"To a very large extent we're trying to help the same people," said state Tax Director Kurt Kawafuchi.

The difference is how that is done.

Lingle has promoted updating the state's standard income tax deduction for the past two sessions. This year, it was also taken up by the House and the Senate.

It has been 16 years since Hawaii raised its standard deductions. The state deduction for a single taxpayer, for example, is still at $1,500, while the federal figure, which is tied to inflation, has grown to $4,850 for 2004.

A number of poverty advocates favor an earned income tax credit because it puts more money back into the pockets of the poorest of the poor without being a handout.

"To me that's very significant because you have to earn $1 to get the credit," said Wayne Tann, a professor of accounting at Chaminade University who also runs a tax clinic for low-income people.

Though half of those who receive an earned income tax credit generally use it on necessities, it is enough that it could be used to begin paying down debt or building assets -- a rare opportunity for most of the poor, said Andrew Aoki, of the policy group 3 Point, who testified before the House Finance Committee in support of the bill.

However, what is seen as the advantage of the credit can also be seen as a disadvantage.

The credit leaves behind people who do not earn income from wages, such as retirees and the disabled, Kawafuchi noted, while the food and medical credit is available to anyone earning up to $40,000.