January 14, 2013

Center on Budget and Policy Priorities: The Impact of Hawaii’s Income Tax on Low-Income Families

ITEP Work in Action

In the next few days, Hawaii’s legislature will consider the conference agreement on changes to Hawaii’s income tax, HB957. This agreement, which appears to have the support of legislative leadership and the governor, increases the standard deductions and expands the tax brackets beginning in tax year 2007. [1]

The bill fails to remedy a well-documented problem in Hawaii’s tax system: the high income tax Hawaii levies on poor working families. A Center on Budget and Policy Priorities report earlier this year found that in tax year 2005, Hawaii was one of the states with the very highest income taxes on families with poverty-level earnings. [2] Despite its substantial cost, HB 957 provides relatively little tax reduction for working-poor families and does little to improve Hawaii’s standing relative to other states.

Of the 42 states with income taxes, Hawaii in 2005 imposed the second-highest income tax in the nation on one-parent families of three with income at the federal poverty line. Under HB957 and other tax changes passed this year, Hawaii will still impose the second-highest income tax on these families.

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