Hawaii would exempt groceries and medical services from its general excise tax if bills advancing through the Legislature become law.
Lawmakers heard a chorus of support Thursday from policy analysts, poverty advocates and the food industry for the proposal to stop taxing groceries.
It is not yet known what such a cut would cost the state. The initial estimate is $200 million for fiscal 2015 and $490 million in subsequent years, said Joshua Wisch, deputy director of the state Department of Taxation.
"The one thing we do know is, it’s costing our residents, in particular our low-income residents, a great deal," said Sen. Sam Slom, the chamber’s lone Republican member, who represents Hawaii Kai and introduced the proposal, Senate Bill 2169.
Kelii Akina, president of the Grassroot Institute of Hawaii, told the Senate Committee on Human Services that a family of four in Hawaii spends an average of $1,000 a month on groceries. Cutting state taxes, he said, would save such a family $450 a year.
Thirty-six states do not tax groceries, Lauren Zirbel, the executive director of the Hawaii Food Industry Association, testified. Seven of the remaining 14 impose lower tax rates than Hawaii, she said.
In written testimony opposing the measure, the Tax Foundation of Hawaii argued that an across-the-board cut to the excise tax rate would save taxpayers money while avoiding the arduous process of defining which food is eligible for the exemption.
The committee also advanced SB 2206, which would establish an earned income credit and cut tax liability for people who earn less than 125 percent of the federal poverty guideline.
Hawaii’s high cost of living and high poverty rate make such a measure necessary, Jenny Lee, an attorney with the Hawaii Appleseed Center for Law and Economic Justice, told the committee.
"It’s simply counterintuitive and inefficient policy to tax households deeper into poverty and then have expensive social services provided in order to try to alleviate the impact of poverty," she said.
The state would double the tax credits it offers to renters who make less than $30,000 a year, under another bill the committee advanced, SB 2835.