Isles’ taxing of poor called ‘mean’ — and bad business

Congratulations, Hawaii, we are Number Three.

Unfortunately our ranking is as the third-meanest state in the nation in terms of taxing the poor.

A new report by the Center on Budget and Policy Priorities slams Hawaii for the petty way it pries money away from families already dealing with poverty.

"Hawaii taxes working-poor families deeper into poverty," says Phil Oliff, policy analyst with the center, based in Washington, D.C.

Most states don’t demand that the poor give them any income tax. The federal government doesn’t tax the poor; just 14 states are asked that the poor fork over some of their wages.

Specifically, Hawaii looks at a family of four at the poverty level and extracts $331 in income taxes. Only 15 states tax such families at the poverty level. Only Alabama and Illinois tax poor people more.

There’s a lot of ways you can look at the problem.

For instance, Hawaii’s poverty level is not as bad as in most states: it is in the bottom one-third.

Still, that means that 21 percent of Hawaii residents are at or below the Census Bureau definition of working poor, which is 200 percent ($44,470) of the poverty line for a family of four with two children.

The center notes that Hawaii is one of only 10 states that taxes families of three who are living at or below the actual poverty level of $17,922.

The center has been pointing out this particular Hawaii cruelty for a half-dozen years. Former Gov. Linda Lingle implored the Legislature for most of those years to do something, and she was rejected.

There are several ways to cut the tax, including a state earned income tax credit, but nothing ever became a law to help the poor.

When times were good, Hawaii taxed the poor; when times were bad, we taxed the poor.

Lowell Kalapa, Hawaii Tax Foundation president, notes that Hawaii’s legislators are fond of giving speeches about their concern for the poor and dedication to helping them.

"We keep saying we are helping the poor, but we are taxing the poor. And not just a few cents, either," Kalapa says.

"Don’t tell me we are helping the poor; give me a break," says Kalapa, who also points out that our taxes on the upper end are also high, so if we are to give tax breaks it should be for both low- and high-income earners.

Oliff says that Hawaii’s insistence on taxing its poor families is just bad business.

"Taxing the poor not only increases poverty, but also may be more harmful than many other budget-balancing measures. Lower-income people spend nearly all of the money they make, mainly on necessities, so for every dollar they lose due to a tax increase, the total amount of spending in the economy drops by around a dollar," Oliff said in an interview from Washington.

"It is counter-productive," he said. "We should make work pay."

Also, Oliff noted studies show that reducing the income of poor families reduces the children’s chances of academic success and their own future earning potential.

Since the 1990s, there has been a bipartisan effort among states to stop taxing the poor; most states with an income tax no longer tax the poor. Oliff and the center said Hawaii during this time has been an outlier.

"The federal government has exempted such families for decades and a majority of states do so as well. Hawaii should follow suit," Oliff said.

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Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser.com.