HILO — When it comes to taxes, Hawaii’s poor pick up more than their share of the tab, according to a new report.
The Washington, D.C.-based Institute of Taxation and Economic Policy has ranked the state as having the fourth highest tax burden on low-income earners in the nation.
According to the report, released Tuesday, the bottom 20 percent (incomes of $17,000 or less) pay 13 percent of their income in state and local taxes. That compares to 8 percent for the top 1 percent in the state, considered residents earning $326,000 or more.
It’s not that low-income earners are being charged higher tax rates. The opposite is generally true, particularly with the state income tax rate, which increases with income.
But, as the report notes, low-wage workers have to spend a higher percentage of their income on certain taxes, primarily those related to consumption.
For instance, the state’s excise tax eats up 11 percent of the income for the bottom 20 percent and 1.3 percent of the income of the top 1 percent, according to the report.
The poor could be getting some relief.
The state Legislature is considering several bills that would provide for earned income tax credits or a state income tax exemption for residents below the poverty line.
Residents at 125 percent above poverty would get a 50 percent reduction.
The Hawaii Appleseed Center for Law and Economic Justice is supporting the legislation.
“They would help the poorest among us survive the many economic challenges they face to their basic survival while eliminating the anomaly of taxing further into poverty those individuals and families who are earning the state’s lowest incomes,” said Victor Geminiani, executive director, in a press release.
About 10 percent of Hawaii residents lived at or below poverty from 2007-2011, according to the U.S. Census.
While the report considers Hawaii to have one of the highest tax burdens on the poor in the nation, it didn’t make its list of the top 10 states with the most regressive taxes.
Those states have the biggest gap between percentage of income spent on taxes between the rich and the poor.
Washington won the title of most regressive state with the bottom 20 percent spending 16.9 percent of its income on taxes and top 1 percent spending 2.8 percent. The report also ranked the state as having the highest tax burden on the poor.
Taxes as percentage of income for poor
Washington: 16.9 percent
Illinois: 13.8 percent
Florida: 13.3 percent
Hawaii: 13 percent
Arizona: 12.9 percent
Texas: 12.6 percent
Indiana: 12.3 percent
Rhode Island: 12.1 percent
Pennsylvania: 12 percent
Arkansas: 11.9 percent
*Source: Institute on Taxation and Economic Policy