Ease tax burden on Hawaii's working poor

THE ISSUE Hawaii places a heavier income tax burden on the working poor than any other state.

TAX REFORM signed into law in Alabama has lifted it from being the nation's cruelest state toward the working poor, replaced in that spot by Hawaii. The burden on the poor is made worse by the islands' high cost of living. The Legislature needs to act during this session to erase this shameful stain from Hawaii's reputation.

Gov. Bob Riley boasted that the new tax law in Alabama is "the best pro-family legislation and the greatest antipoverty initiative the state has ever undertaken." He branded the old law "immoral," a description that fits Hawaii's tax policy toward working families striving to lift themselves out of poverty.

Alabama has been the nation's Scrooge in four important categories: the $4,600 income threshold at which it began taxing families of four; the $538 tax bill it handed to families of four with income at the federal poverty level of $19,961; and the $458 bite on families of three at the poverty level of $15,577.

The Alabama changes make Hawaii the heaviest taxer of income for poverty-level families of three and four members, at $373 and $470 respectively, according to the Washington-based Center on Budget and Policy Priorities.

As a result of the Alabama tax package, "Hawaii is on track to become the nation's heaviest taxer of the earnings of the working poor," according to the center's Shannon Spillane.

The Alabama changes make Hawaii No. 1 for its $612 tax on families of three with incomes of $19,471, which is 125 percent of the poverty level. Its $808 tax on families of four with $24,951 incomes, 25 percent above the poverty line, is lower than only Kentucky ($858) and Oregon ($813), according to a center report earlier this year. The $11,500 threshold at which it begins taxing families of four is greater than only West Virginia ($10,000) and Montana ($10,800).

Those are horrible figures, made worse by the fact that living costs in Hawaii are much higher than those in the other states that gouge poor families at similar levels. The thresholds at which Hawaii begins taxing families of three and four are little more than half average thresholds of $18,160 and $21,360 respectively among the 42 income-taxing states.

Governor Lingle has called for an increase in the standard deduction for married couples from the current $1,900 to $4,200. That would increase the level at which two-parent families of four begin paying taxes to $13,900, lifting Hawaii out of the embarrassing cellar, according to the center.

Enactment of earned income tax credits, similar to federal credits, would be preferable, helping those making less than the current threshold income. The center estimates that credits at 20 percent of the federal level -- available to working families with two or more children and incomes up to $34,000 -- would provide greater relief than raising the standard deduction, at about the same loss in state revenue.