LIHU‘E — Taxes were due Monday, but state legislators still have time to pass legislation that could significantly benefit Kaua‘i taxpayers.
After taking a long, winding path through the Legislature, a bill making the Earned Income Tax Credit permanent and refundable has made it through both the House and the Senate, though disagreements over amendments mean that the bill will now go before a conference committee.
The policy, which state Rep. Nadine Nakamura called “an additional cushion for our working families,” is estimated by the Hawai‘i Tax Fairness Coalition to boost the incomes of 5,452 families by $420 on average while generating $2,840,179 in economic activity for Kaua‘i. The state EITC was introduced in 2018, but is set to expire at the end of this year.
“(The EITC) is one of the most successful anti-poverty programs in existence,” said Will Caron, communications director at the Hawai‘i Appleseed Center for Law and Economic Justice.
“During tax season, working families can really use the boost that the EITC is capable of delivering. We want to make sure that the state EITC is continued so that those families can rely on that boost year after year, and they can help power our consumer economy at the same time.”
Unlike the federal EITC and most states that use the credit, the Hawai‘i state EITC is not yet refundable, meaning that when a family’s credit exceeds the amount they owe income tax on, they do not receive the additional money.
The refundable federal EITC was among the most significant rebates that working families
received during tax season this year.
A tax-preparation agent at accounting firm Makena Miyake in Lihu‘e used the example of a single person who worked and made $13,000 last year gaining a federal EITC benefit of $899.
The woman had $61 of taxes due, which were already canceled out by other credits. Since the federal EITC is refundable, the $899 will be sent directly to her.
This benefit only comes if it can be claimed, however, which Tom Yamachika, president of the Tax Foundation of Hawai‘i, says is easier said than done.
According to research from the Tax Policy Center, nationwide “about 5 million potentially eligible taxpayers do not claim the credit each year, resulting in about $7 billion in unclaimed.”
The credit is less likely to be claimed by people living in rural areas, TPC says.
“If you’re a lawmaker or you’re at the (state) Department of Taxation, you might want to consider making this credit easier to find so the working families that we want to help at least have a fighting chance at getting this relief,” said Yamachika in a recent editorial.
The state EITC has been made a political bargaining chip in minimum-wage negotiations between the House and Senate.
It was originally included in House Bill 2510, which also slowed the rate of increase of the wage increase and increased the tip credit, which allows employers to pay sub-minimum wages to tipped employees.
This was removed by the Senate, which also amended the bill to speed up the timeline and get rid of the tip credit entirely.
In early April, the EITC was added into a House Bill 510 — a vehicle registration tax credit bill, which passed the Senate last Tuesday.
The House has since voiced disagreement with the Senate amendment to HB510, and the bill will now go to a conference committee made up of House and Senate members.
Another major tax change proposed this session was an increased capital gains tax, originally introduced alongside the EITC in House Bill 1507. This measure seems dead on the vine, however.
The bill would have taxed all capital gains income at the taxpayer’s highest marginal tax rate, which would have generated significant revenue from the state’s top income earners.
According to the state Department of Taxation, taxpayers with higher incomes tend to make more income in capital gains.
“If capital gains in Hawai‘i were taxed like ordinary income, as they are in most other states, Hawai‘i would bring in about $72.3 million in new revenue per year,” reads testimony from Nicole Woo, director of research and economic policy at Hawai‘i Childrens’ Action Network.
“And 97% of it would be paid by the top 5% of earners in Hawai‘i, or those making at least $261,000 a year. Meanwhile, the vast majority of taxpayers, those in the bottom 80%, would pay nothing at all,” she said in her testimony.
The bill passed the House and first reading in the Senate, but never received a hearing in the Senate Ways and Means Committee, effectively killing it.
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Guthrie Scrimgeour, reporter, can be reached at 647-0329 or gscrimgeour@thegardenisland.com.
