Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations

Report: State could slash child poverty in half with new tax credit

pexels-delcho-dichev-1129615.jpg
Delcho Dichev
/
Pexels

The child tax credit has been available at the federal level since 1997. Before 2021, families were able to take advantage of a $2,000 credit per child.

Under the American Rescue Plan, the credit was expanded to $3,000 per child between the ages of 6 and 17, and $3,600 for every child under 6 years old.

"It changed in three really meaningful ways under the American Rescue Plan," said Aidan Davis, a state policy researcher with the Institute on Taxation and Economic Policy.

The maximum credit amount was increased for most children, and then the eligibility was also expanded to include 17-year-olds for the first time, Davis said.

Another major change was making the credit fully refundable. Davis tells HPR that it allowed low-income families to receive the full credit regardless of their level of taxable income.

The expansion of the federal credit led several states to consider a local child tax credit policy. ITEP wanted to find out the impact of different credit levels on reducing child poverty in every state. The institute released its 50-state analysis in November.

For Hawaiʻi, the report concluded that a $1,800 credit would reduce child poverty by up to 25%. While a $4,000 credit can reduce it by 50%.

"Lawmakers could lift 23,000 children out of poverty, and benefit up to 91% of Hawaiʻi children," Davis said. "Then looking at the data that we put together for Hawaiʻi, the options we present would require an investment of anywhere from 1.3% to 5% of Hawaiʻi's total state and local revenues."

However, the report doesn't take into account the tax credits available to local families.

"Hawaiʻi already has at least four tax credits that working parents can access," said Nicole Woo, research and economic policy director at Hawaiʻi Children's Action Network. "In a way, we do have child tax credits here in Hawaiʻi already. They're just called something different."

According to Woo, families can take advantage of the following credits: food excise, child care and dependent, low-income and renters, and the recently expanded earned income tax credit.

"Last session, the state Legislature improved the earned income tax credit here in Hawaiʻi," said Woo. "It will be more effective in coming years. Specifically, it's going to allow lower-income parents to get the full amount of the credit. So it's going to be even better targeted at those who really need the tax credit the most."

While these credits help many local families, there are still challenges to addressing child poverty. According to Woo, one is getting state lawmakers to approve more spending toward credits. Another is raising the income eligibility requirements.

"One thing we've seen over the last 10 to 20 years, is that fewer families are able to get these tax credits at the state level because they keep bumping up against the income eligibility limit," Woo said. "A lot of those limits haven't been moved in a long time."

Another factor that impacts local families is the cost of living. Woo says this has been an ongoing crisis in the state, but the passage of an increased minimum wage in the last legislative session should help.

"The other side of the coin is how much people pay in taxes. So tax credits are just as important a tool to help working parents keep more money in their wallets," Woo said. "This is often an overlooked tool for legislators."

Woo tells HPR there may be a few lawmakers that may introduce a child tax credit proposal in the next session. While that could help families, she believes it may be better to combine current credits to make it easier for eligible families to receive.

She anticipates there will be more discussions on helping lower-income workers and families at the next legislative session, which starts next year on Jan. 18, 2022.

Casey Harlow is an HPR reporter and occasionally fills in as local host of Morning Edition and All Things Considered. Contact him at charlow@hawaiipublicradio.org or on Twitter (@CaseyHarlow).
Related Stories