New tax benefits likely overstated for Hawaii’s poorest

Many of Hawaii’s poorest residents got uplifting financial news earlier this month: Federal tax changes will save them $1,182 on average this year. Now comes bad news about that: The savings estimate made by a state agency probably was in error.

The state Department of Business, Economic Development and Tourism, which issued a report with the estimate March 12, now says it probably overestimated the average savings for 92,030 Hawaii taxpayers earning up to $10,000 under the federal Tax Cuts and Jobs Act.

A local nonprofit addressing poverty issues, Hawaii Appleseed Center for Law and Economic Justice, disputed DBEDT’s estimate Wednesday in a report from its recently formed research and analysis affiliate Hawaii Budget and Policy Center.

The Appleseed affiliate’s analysis concluded that the actual average savings for taxpayers in the same income range would be a “token” amount.

For a household earning $5,180 with one dependent, the savings would be $75 instead of DBEDT’s reported $1,073, the Appleseed report said.

The Appleseed report also noted that low-income households without dependent children, including most senior households, will see no benefit from the new tax code.

“Low-income families in Hawaii are largely left behind by the new federal tax law,” the report said.

The reason for DBEDT’s miscalculation, according to Appleseed’s report, was not accounting for a limit on how much of an enhanced child tax credit can be refunded under the new law. DBEDT cited the child tax credit, which was doubled from $1,000 to $2,000 and had its refundable portion increased to $1,400 per child, as a major factor benefiting those earning the least.

Eugene Tian, the state’s chief economist, said in an email that DBEDT is reviewing its analysis for Hawaii taxpayers earning up to $10,000 and the child tax credit application.

“We probably overestimated the tax saving for this group,” he said. “We will issue corrections and revise our analysis once our calculation is done.”

The Appleseed report also took issue with DBEDT calculations of tax impacts on wealthy Hawaii households under the new law. DBEDT’s report said that taxpayers earning $500,000 to $1 million would pay $2,438 more in federal taxes this year, while taxpayers earning over $1 million would pay $33,941 more this year. However, DBEDT noted in its report that it was assessing only individual income taxes and didn’t factor in tax benefits for business and investment income claimed by most high-income households.

DBEDT’s report noted that national research has shown that the new tax law will disproportionately benefit the top 1 percent of income earners in the long term.

A nonpartisan Washington, D.C.-based nonprofit, the Institute on Taxation and Economic Policy, has estimated that Hawaii’s richest 1 percent, represented by households earning over $554,230, would save $39,420 on average next year under the new law. The group also figured that Hawaii taxpayers earning less than $26,620 would save $130 on average in taxes.