LIHU’E – Taxes were due Monday, but state lawmakers still have time to pass legislation that could significantly benefit Kaua’i taxpayers.
After traveling a long and winding road through the Legislature, a bill making the earned income tax credit permanent and refundable passed both the House and Senate, although disagreements over the amendments mean the bill will now go to a conference committee.
The policy, which State Rep. Nadine Nakamura called “an extra cushion for our working families,” is estimated by the Hawai’i Tax Fairness Coalition to boost the incomes of 5,452 families by an average of $420 while generating $2,840,179 in economic activity for Kaua’i. The state EITC was introduced in 2018, but is due to expire at the end of this year.
“(The EITC) is one of the most successful anti-poverty programs there is,” said Will Caron, director of communications 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 able to provide. We want to make sure that the state’s EITC is maintained so that these families can count on this boost year after year, and can help fuel our consumer economy at the same time.
Unlike the Federal EITC and most states that use the credit, the State of Hawaii’s EITC is not yet refundable, which means that when a family’s credit exceeds the amount on which she owes income tax, she doesn’t get the extra money.
The federal refundable EITC was one of the biggest rebates working families received during tax season this year.
A tax preparer from accounting firm Makena Miyake in Lihu’e used the example of a single person who worked and earned $13,000 last year and got an EITC federal benefit of $899.
The woman had $61 in taxes to pay, already canceled by other credits. Since the federal EITC is refundable, the $899 will be sent directly to him.
This benefit only comes if it can be claimed, however, which, according to Tom Yamachika, president of the Tax Foundation of Hawaii, is easier said than done.
According to a study by the Tax Policy Center, nationwide, “about 5 million potentially eligible taxpayers do not claim the credit each year, representing about $7 billion in unclaimed dollars.”
The credit is less likely to be claimed by people living in rural areas, says TPC.
“If you’re a legislator or you’re in the (state’s) tax department, you might want to consider making this credit easier to find so the working families we want to help have at least a fighting chance. get that relief,” Yamachika said in a recent op-ed.
The state’s EITC has become 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 in wage increases and increased the tip credit, which allows employers to pay wages below the minimum. tipped employees.
This was removed by the Senate, which also amended the bill to speed up the time limit and remove the tip credit altogether.
In early April, the EITC was added to House Bill 510 – a vehicle registration tax credit bill, which passed the Senate last Tuesday.
The House has since disagreed with the Senate amendment to HB510, and the bill will now go to a conference committee made up of members of the House and Senate.
Another major tax change proposed this session was a capital gains tax increase, originally introduced alongside the EITC in Bill 1507. This measure, however, seems dead on the vine.
The bill would have taxed all capital gains income at the taxpayer’s top marginal tax rate, which would have generated significant revenue from the state’s top earners.
According to the state Department of Taxation, taxpayers with higher incomes tend to earn more capital gains income.
“If capital gains in Hawai’i were taxed as ordinary income, as they are in most other states, Hawai’i would bring in approximately $72.3 million in new income per year,” reads the testimony from Nicole Woo, Director of Research and Economic Policy. at the Hawaii Children’s Action Network.
“And 97% of it would be paid for by the top 5% earners in Hawai’i, or those earning 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 was never heard by the Senate Committee on Ways and Means, effectively killing it.
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Guthrie Scrimgeour, journalist, can be reached at 647-0329 or [email protected]
