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The Honolulu Advertiser
Posted on: Sunday, May 2, 2010

Isles taken to task on taxes

BY Greg Wiles
Advertiser Staff Writer

"We're taxing people on money that should be going to food and shelter."

Lowell Kalapa | head of the Tax Foundation of Hawaii

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Hawai'i is being criticized for being one of 13 states that tax the working poor deeper into poverty.

A Center on Budget and Policy Priorities found that in 2009, a couple with two children living in poverty still faced a state tax bill of $266 in Hawai'i.

"Taxing the incomes of working-poor families runs counter to the efforts of policymakers across the political spectrum to help families work their way out of poverty," said the report by the group, a Washington-based nonprofit that concentrates on issues affecting low- and moderate-income families.

"The federal government has exempted such families from the income tax since the mid-1980s, and a majority of states now do so as well."

The report shows that Hawai'i has reduced over the past 15 years what a family of four at the poverty line of $21,947 pays in state income taxes. But in 2009 the family still owed the state $266.

Lowell Kalapa, head of the Tax Foundation of Hawaii, said the issue of taxing poor residents in the state has been around for decades. His group has favored increasing standard tax deductions and raising personal exemptions.

"We're taxing people on money that should be going to food and shelter," Kalapa said. "Why are we taking money away from people living at subsistence levels?"

The study also found that Hawai'i's tax on a family of four at the poverty line was the second highest in the nation, trailing only Alabama, which levied a $468 tax on such families last year.

It also found:

• Hawai'i was second-highest in taxing a single parent with two children at the poverty line of $17,102.

Such a family owed the state $211 last year, or $122 behind Alabama.

• A single-parent family of three making minimum wage in Hawai'i had to pay $98 in Hawai'i income taxes last year.

• Hawai'i is one of 11 states where a single-parent family of three has to pay income tax at the poverty line.

• Hawai'i also taxes the so-called near-poor. Both a single parent heading a family of three and a two-parent family of four making 125 percent of the poverty lines owed taxes in the state last year.

Kalapa cautioned about the methodology of such studies since they may not take into account all of the tax credits available to low-income families and individuals.

Hawai'i, for example, has tried to ease some of the income tax burden by offering a food tax credit and a credit for low-income home renters, Kalapa said.

The Center on Budget report noted there are 17 states that don't tax the poor and also offer tax credits that provide refunds to families of three or four with income at the poverty line.

It said in recent years other states have tried to enact changes to reduce the tax burden on the poor. But it noted that state financial problems have halted progress in improving the treatment of low-income workers.