THIS REPORT RECOMMENDS that the State of Hawai‘i adopt two tax measures to address the needs of low income individuals and families:
1. A refundable Hawai‘i Earned Income Tax Credit. We propose the Hawai‘i EITC be fixed at 20 percent of the taxpayer’s federal refundable earned income tax credit.
2. A non-refundable Hawai‘i Poverty Tax Credit to eliminate income tax on the poor. The Hawai‘i Poverty Tax Credit would:
a. eliminate state income taxes on families whose adjusted gross income is below the applicable federal poverty guidelines for Hawai‘i; and
b. reduce by 50 percent the state income tax on families whose adjusted gross income is between 100 and 125 percent of the applicable federal poverty guidelines for Hawai‘i.
This non-refundable credit should adjust annually based on adjustments in the federal poverty guidelines for Hawai‘i.
This report also briefly discusses five possible tax policy modifications that could equitably generate significant additional tax revenues that would more than pay for the costs of enacting the Hawai‘i EITC and the Hawai‘i Poverty Tax Credit.