Food/Excise Tax Credit Update

Bills: SB2202 and HB 1805
Related Bills: HB 2538

The cost of living in Hawai‘i is the highest in the nation and continues to rise. The extremely high cost of living in Hawai‘i results in a constant struggle for low and moderate-income households to make ends meet and put food on the table: attain:

  • Hawai‘i’s families face the highest cost of living in the highest in the nation, at almost 160% of the national average. Groceries cost almost 60% more than they do on the mainland.
  • Our residents earn the lowest wages in the country when adjusted for the cost of living, while the tax rate for low-income households is among the highest in the nation.
  • The General Excise Tax applies to virtually all goods and services, including necessities such as groceries and medical care. Because a 0.5% GET is levied on wholesale transactions, the GET has a “pyramiding” effect which drives up retail prices.
  • The GET is a major contributor to the regressive impact of Hawaii’s tax system. The poorest taxpayers pay, on average, approximately13 cents of every dollar of income in taxes, while those earning more than $400,000 pay closer to 8 cents on every dollar of income. Hawaii’s residents in poverty pay more in state taxes than all but 3 other states.

Hawai‘i’s Taxes Exacerbate this Struggle

  • Hawaii’s working poor families pay higher tax bills than those in all but 3 other states, and the tax rate for low-income households is among the highest in the nation.
  • Because Hawai’i’s tax structure lacks adequate credits and exemptions, the personal income tax actually pushes some low-income working families deeper into poverty.

Proposed Adjustments to the Food/Excise Tax Credit

  • The food/excise tax credit was created to mitigate the high cost of living in Hawai‘i and the inherently regressive impact of the GET on low and moderate-income households. This credit has not been adjusted to keep up with the inflation that has occurred since it was created in 2007.
  • The credit currently provides a maximum refundable credit of $85 per qualified exemption. Households with federal Adjusted Gross Income of less than $50,000 are eligible for the credit with the value of the credit decreasing as income increases.
  • The proposed changes to the food/excise tax credit would update it to restore some of the value of the credit lost to inflation since its creation. They would increase the maximum value of the credit amount to $96 per qualified exemption for households and adjust the income thresholds to make households with an adjusted gross income of less than $56,500 eligible for the credit. Inflation has been 12% since the credit was last set in 2007.
  • The proposed changes would also adjust credit values and income thresholds automatically for inflation to ensure that it does not lose ground going forward.