HONOLULU — Hawaii Gov. David Ige has approved a new law that increases income tax rates for the state’s wealthiest residents while also creating a new state earned income tax credit to ease the state tax burden on some of the state’s poorest working families.
The state law, which Ige signed Monday, also made permanent a state tax credit that is designed to offset some of the state excise taxes that lower-income residents pay on food purchases.
The Hawaii treasury will gain about $20 million to $40 million annually from the new law because the extra income tax on wealthier residents will bring in more money than the tax credits will cost the state in lost revenue, according to House Finance Chairwoman Sylvia Luke.
A spokeswoman for the Department of Taxation said the state expects to collect an extra $51 million in 2018 from the tax increase on high-income residents but will forgo $16.7 million because of the new earned income tax credit.
The spokeswoman also said Hawaii will give up another $6.5 million next year because of the now-permanent refundable tax credit aimed at easing food costs for low-income residents.
The earned income credit will provide new tax relief worth about $130 million over the next six years to Hawaii’s poor and working families, State Rep. Aaron Johanson said.
Critics have said Hawaii’s tax structure weighs heavily on the poor because so much of the state’s tax collections come from the general excise tax, which is imposed on basic necessities such as food and rent. The excise tax accounts for nearly half of all state general treasury revenue, the Honolulu Star-Advertiser reported (http://bit.ly/2u96CDg ).
Ige cited statistics showing the lowest-income households pay about 13 percent of their incomes on state and local taxes, while the wealthiest households pay less than 8 percent.
Johanson called the new law “a big win and a big victory for Hawaii’s working class.”
The new Hawaii credit will give households back 20 percent of what they are owed from the federal earned income tax credit and can be used to offset any tax liability.