House Committee on Finance (FIN) - chair: Sylvia Luke, vice chair: Scott Y. Nishimoto, Aaron Ling Johanson

Thursday, March 20, 2014, Room 211

Testifier: Beppie J. Shapiro, Legislative Committee, LWV of Hawaii

Click here to view HB2371, HD1

Chair Ige, Vice-Chair Kidani, Members of the Committee: The League of Women Voters of Hawaii supports HB2371 HD1 , which raises the threshold eligibility for the food/excise tax credit and the low income renters credit increases the amount of these credits; and reduces income tax liability for very poor taxpayers; and creates an earned income tax credit (EITC) for working poor taxpayers proportional to the federal EITC. Having read this bill draft and the testimony presented to the Committee on Human Services, the League has the following comments and respectful suggestions, acknowleding that we are not experts on taxation. 1. As just one sample statistic on the impact of poverty in Hawaii, the UH Center on the Family reports that in 2013, over a third of individuals who slept in homeless shelters were under age 17 (over 2,900 children), with 18%, or almost one fifth, under the age of five.1 We urge you to consider the lives of these children – you don’t need statistics to feel empathy for the chaos and insecurity they face, and the resulting under-performance in formal education and employability. HB2371 HD1 proposes measures to alleviate the most dire poverty in Hawaii. 2. Action to redress the impact on very poor residents of our regressive state excise tax, and the high cost of housing in Hawaii, is urgently needed. While we agree with the Department of Taxation that determining the Federal Poverty Level for a taxpayer will be challenging, we note that federal and state agencies often classify families by their FPL for eligibility for services. This determination is possible – error rates may falsely identify a few “nearly eligible” families as eligible, and vice versa, but do not exceed the benefit of this bill in identifying the very poor for targeted help. Identification is greatly simplified by data-sharing among agencies, which is a goal worth pursuing in Hawaii. We have considered the testimony of the Tax Foundation, which suggests calculating the low income renters credit as a percentage of rent paid (the Foundation suggests 4%); this has the benefit of a built-in adjustment for inflation over the years, eliminating years of thecredit falling behind inflation and much legislative time spent trying to adjust fixed dollar amounts. Therefore we support this suggestion, although since most very poor families must settle for a very low standard of housing, we believe the percentage should be higher to provide meaningful relief. 3. We agree with the Department of Taxation and the Tax Foundation that rather than using tax credits to redress Hawaii’s inequitable and highly regressive income tax schedule, it would be simpler to significantly raise the threshold income which requires payment of taxes, and revise the schedule of taxes due to prevent over-taxation of those with low incomes compared with taxpayers with higher incomes. 4. Lastly the League strongly supports a state EITC as a proportion of the federal EITC, even given the testimony of the Department of Taxation about error rates and possibility of fraud. We note that fraud and error are associated with all taxation of individuals and businesses at all income levels, both federally and in Hawaii, which has not prevented Congress and the Legislature from using this comparatively effective tool for implementing social and fiscal policies. The federal EITC has been evaluated several times and its effectiveness in ameliorating extreme poverty, and the impact of poverty on the nutrition, health, and education of children as well as the well-being of families has been clearly demonstrated.2 The federal EITC is available only to working families, and eligibility for families with children is a priority of the calculation. We urge you to pass this bill, with or without the modifications suggested above. Thank you for the opportunity to submit testimony. 1 UH Center on the Family: Homeless Service Utilization Report 2013. 2 Sherman, A. Trisi, D., and Parrott, S. Various Supports for Low-Income Families