Is There Any Help for the Poor?

What is remarkable for an administration and a party whose philosophy is to help the poor in the claim to that Hawaii was the only state to reduce taxes at a time when many other states were raising taxes is that the poor in Hawaii got very little in the round of “tax cuts” for which the administration is so proud.
As result of the actions of the 1998 legislature, brackets were adjusted across the board and the top tax rate was reduced from 10% to 8.25% this year, but very little was done to actually get more poor people off the tax rolls. Instead, lawmakers threw a sop to the poor in the form of a $30 per exemption tax credit.
While every little bit helps, Hawaii continues to register in the hall shame in imposing the state income tax on poor families. In fact, Hawaii has the fifth lowest threshold for a single parent family of three among all the states which impose an income tax. Why does Hawaii retain this honor? Well, one reason is that Hawaii has not increased its standard deduction in more than a decade. This is the floor before which a family has to begin paying state income taxes.
While administration officials acknowledge that an increase in the standard deduction would drop many of the poor from the income tax rolls, they also caution against the substantial revenue impact it would have. True, because the standard deduction would benefit not only low-income individuals but also those in middle and upper income brackets because it exempts the first portion of any taxpayer’s income. However, there are elements which can be used to alleviate the tax burden on low-income taxpayers. The other two components that can be used to alleviate the tax burden on the poor include the dependent and/or personal exemption and tax credits.
An increase in the dependent exemption would recognize that there are those who have an additional burden to support dependents that should be recognized in the amount of tax those taxpayers are expected to pay. The dependent exemption could be set at an amount greater than the personal exemption as a way to recognize this additional burden.
On the other hand, tax credits could be aimed specifically at the low-income families who are still on the income tax rolls. So say the state could afford only a minimal increase in the standard deduction because the increase would benefit middle as well as high income families. The dependent exemption could be increased to recognize those families that have more members to support.
And finally an income tax credit could be constructed to eliminate any income tax payment for the truly low-income families of our community. As a result, the revenue impact could be minimized.
So the poor will benefit from these actions should lawmakers see fit to undertake this task. But what about the rest of the taxpayers? What is the benefit for all other taxpayers? Well, first of all the higher standard deduction means another reduction in income taxes due because it means that the threshold before income taxes are imposed benefits all taxpayers. Second, by eliminating more poor from the income tax rolls, it means less income tax returns to handle at the tax office.
So one might ask, what should lawmakers do? Should lawmakers cut the rates at the top to remain competitive with other states seeking to attract new businesses to the state or should changes be made to eliminate the truly low-income from the tax rolls?
Both need to be done, but how quickly lawmakers can make these changes is largely up to the political will they are willing to exert to accommodate the revenue impact resulting from both. There is no doubt that it will mean a drop in income tax revenues, but if one can accept that the money does not disappear but is redirected into consumer spending, the overall effect should be positive for the state revenue picture.
What is more important is that the truly poor in our community should not have to pay taxes on what little they earn. Under current law, the state income tax is imposed on incomes that would otherwise be considered below poverty level depending on the size of the family. By imposing the state income tax on such low incomes provides little incentive to work harder and earn more.
Rather than discouraging the poor from working harder by taking a chunk of what little they earn, the state income tax system should be modified to eliminate the truly poor from the income tax rolls.