Certain tax credits for certain low-income families are set to double or more under a tax plan passed by the state Legislature.
Three key tax credits for “ALICE families” — a term referring to “Asset Limited, Income Constrained, and Employed families” — will double and even quadruple under a series of tax credit increases proposed under Gov. Josh Green’s Green Affordability Plan, a sweeping series of credits and other financial assistance aimed at improving the state’s cost of living crisis.
House Bill 1049, the primary legislative vehicle for the Green Affordability Plan, stalled out at the last minute, never making it to its final conference committees. Nonetheless, most of the bill’s language was transferred to House Bill 954, which has successfully passed its final committees and awaits Green’s signature.
First, under HB 954, the state earned income tax credit will be expanded to be 40% of the federal earned income tax credit, up from the current 20%.
Second, a food/excise tax credit will be doubled. Where before, that credit ranged from $35 to $110, depending on the claimant’s tax bracket, the bill sets the credit at $70 to $220, while also raising the ceilings on those tax brackets — currently the highest $110 credit can be claimed only by those with an adjusted gross income below $5,000, but the bill would grant the highest $220 credit to those making up to $15,000.
Finally, the state’s child and dependent care tax credit, which allows taxpayers who care for children or dependents to claim a percentage of employment- or care-related expenses as a tax credit, will be quadrupled. The current maximum size of the credit caps at $2,400 for those with one dependent or $4,800 for those with more. HB 954 sets those caps at $10,000 and $20,000, respectively.
“Depending on their situation, people could see another $2,000, $3,000 per year,” said Hilo Rep. Chris Todd. “If they can claim that dependent care credit, it could be even higher.”
Todd noted that some components of Green’s initial proposal didn’t survive the transplant from HB 1049 to 954, and said that initial predictions about how much money the state has to work with this year were overly optimistic.
“What happened was our counsel on revenues got revised downward,” said Hilo Rep. Chris Todd. “We had to get a little more conservative about spending.”
Some of those missing facets of the Green Affordability Plan include a tax credit for teacher expenses and an income tax for low-income renters. HB 1049 also included a more elaborate change to the dependent care tax credit that would have allowed claimants to claim 50% of expenses.
Todd said the state could pursue those discarded ideas in future legislative sessions, but added that the state’s financial straits may not allow it.
The state’s expenditure ceiling, which is influenced by factors including the previous year’s ceiling and the state’s economic growth, is expected to remain rather low over the next few years after the one-two punch of extremely low government spending in 2020 because of COVID-19, followed by a boom in spending the following year.
“I think we’re going to end up hitting those ceilings pretty quickly for the next few years,” Todd said.
Nonetheless, Green announced last week that he was proud of the progress regarding most of his plan’s key components, calling it “a critical first step to lower Hawaii’s cost of living.”
“While these are victories for Hawaii’s people, the administration will continue to pursue bold and transformative tax relief proposals for local residents, and fight to lower Hawaii’s cost of living for families of all income levels,” Green said in a statement.
Email Michael Brestovansky at mbrestovansky@hawaiitribune-herald.com.