Chair Tokuda, Vice-Chair Kouchi, and Committee Members:
The League of Women Voters of Hawaii supports SB556 which establishes a refundable earned-income tax credit equal to 10% of the taxpayer’s federal Earned Income Tax Credit (EITC); and requires a report on the usage of this provision from the Department of Taxation.
The League believes that public policy should promote self-sufficiency and that the most
effective social programs to address health, education, and use of social services are those designed to prevent or reduce poverty.
Poverty at the level eligible for the federal EITC (e.g. household income below $14,500 for a single person or below $38,511 for a single parent with one child) has destructive effects on the health of individuals, and of neighborhoods; it is particularly destructive for children. In 2012 20% or 2,000 of Hawai‘i’s children under age six lived in low-income working families. 1 Eight percent, or 25,000 children under age 18 across the country lived in extreme poverty – less than half the Federal Poverty Level (FPL). 2 Research on early childhood development shows that income insecurity negatively affects brain development – making it more difficult to form positive relationships, to learn, and to control debilitating stress.3 Providing a little financial relief to very poor families will help ameliorate these problems: a small increase in income has been found to raise children’s’ school achievement3 and to increase their later earnings4.
The federal EITC has been repeatedly cited as the most effective anti-poverty measure ever created by the federal government. The Center on Budget and Policy Priorities provides the following data 5 (the Center’s report provides detailed research descriptions and citations): “For families that have very low earnings and are just gaining a toehold in the labor market, the size of their EITC and CTC increases as the families’ earnings rise, countering the phase-down of some other benefits that fall as earnings rise… These tax credits boost the families’ overall income and strengthen incentives to work.
The EITC promotes work, as numerous studies have found. The overwhelming finding of the empirical literature is that the EITC has been especially successful at encouraging the employment of single parents, especially mothers, ”The EITC lifts more children out of poverty than any other program”
“Most EITC recipients claim the credit for short periods (a year or two) and mostly to offset the temporary costs of a child’s birth or a spouse’s loss of income. Most EITC recipients pay more in federal taxes over the long run than they receive in EITC benefits.”
“Programs that supplement the earnings of low-income working families, like the EITC and CTC, boost children’s school achievement and future economic success, and participating children are healthier as infants and have more economic success as adults.”
SB556 is a creative way to provide these benefits to our poorest individuals and families.
The extra money families would have if SB556 is enacted would surely be spent immediately on basic necessities of life, thus adding economic activity to the State and its businesses.
We are also pleased to see the Legislature following up, by means of the required report, on some of the effectiveness of its legislation. We do not expect that establishing the tax credit described in the bill would cause revenue insufficient to cover basic state services, but we hope the Department of Taxation will provide your Committee confirmation of the revenue impact.
We believe that this hearing will suffice to discuss this important measure. We urge you to pass this bill. Thank you for the opportunity to submit testimony.
1 "Population Reference Bureau, analysis of data from the U.S. Census Bureau, 2008 - 2012 American Community Survey"
2 Annie E Casey Foundation, National Kids Count. Retrieved from http://datacenter.kidscount.org/data/tables/45-children-in-extreme-poverty?loc=13&loct=2#detailed/2/any/false/868,867,133,38,35,13/any/325,326 on 3/15/2014."
3 Greg J. Duncan, Pamela Morris, and Christopher Rodrigues, “Does Money Really Matter? Estimating Impacts of Family Income on Young Children’s Achievement with Data from Random Assignment Experiments,”Developmental†Psychology, Volume 47, Issue 5, September 2011, pp.12631279; also Kevin Milligan and Mark Stabile, “Do Child Tax Benefits Affect the Wellbeing of Children? Evidence from Canadian Child Benefit Expansions,” National Bureau of Economic Research, December 2008; and Gordon Dahl and Lance Lochner, “The Impact of Family Income on Child Achievement: Evidence from the Earned Income Tax Credit,” National Bureau of Economic Research¨ December 2008.
4 See Greg J. Duncan, Ariel Kalil, and Kathleen M. ZiolGuest, “EarlyChildhood Poverty and Adult Attainment,
Behavior and Health,” Child Development¨January/February 2010, pp. 306-325.
5 Sherman, A., Trisi, D. & Parrot, S. (2013). Various Supports for Low-Income Families Reduce Poverty and Have Long-Term Positive Effects On Families and Children. Center on Budget and Policy Priorities, retrieved from http://www.cbpp.org/cms/?fa=view&id=3997 on 3/15/2014.