The Earned Income Tax Credit (EITC) is a special tax credit for families that work.

This credit helps working families keep more of what they earn and has been helping Hawaiʻi residents make ends meet for the past four years. However, the lowest-income families that need it the most still can’t access its full benefits. And all families that benefit from it today are at risk of losing it if the legislature takes no action to make the credit permanent.

It’s tough to make ends meet in Hawaiʻi. We want working families to have a bigger tax refund come next year because research shows these families, when given financial breathing room, are the drivers of the consumer economy.

This credit would also have the greatest impact for families with children, and there’s no better investment we can make than investing in the future of our keiki. Now is the time to invest in working families.

The federal EITC is a tax credit that reduces or eliminates workers’ tax liability. The state EITC mirrors the federal credit, and provides eligible households with an additional credit based on a percentage of the federal EITC.

The EITC is only available to people who earn income through low-wage work. Most of the people who receive the credit are raising children. It helps families who, despite working, are still unable to make ends meet and who do not qualify for other programs.

This tax credit offers working families a hand up by encouraging them and supporting work and reducing the use of public assistance.

• Hawaiʻi’s low-income families face the second-highest tax rate in the nation, with our lowest-income households paying much more of their income (15 percent) in taxes as those at the top (who pay only about 8.9 percent).

• Working families in Hawaiʻi have seen their purchasing power shrink in recent years. High rents, stagnant wages, and increasing energy and food costs mean a family’s dollar has to stretch further each year just to meet basic needs. The state EITC puts thousands of dollars back into the pockets of working residents with far-reaching benefits for both parents and children.

• For families with very low wages, the credit increases with each dollar earned, which encourages adults to work more hours, consequently enabling them to gain a firmer foothold in the workforce and be more resilient in the face of temporary setbacks like pay reductions or layoffs. For families working their way into the middle class, this helps prevent minor hiccups from becoming major setbacks.

• Households that are not in immediate need can also opt to save their refunds. Almost 30 percent of Hawaiʻi’s households are “liquid asset poor,” meaning that they do not have enough liquid assets to survive for three months at the poverty level in the absence of other income. A state EITC can help families achieve greater economic security and address this issue.

The benefits of the EITC are immediate and long-lasting, strengthening the future of Hawaiʻi.

• Children and young adults in families receiving the federal and state EITC experience financial, educational and health benefits that strengthen their foundations for future success.

• Because the EITC is targeted at families with children, it is particularly effective at alleviating the impact of child poverty. About 18,000 children in Hawaiʻi are kept out of poverty due to the federal EITC each year.

• In 2018, the federal EITC kept 5.6 million people out of poverty nationally. More than half of those were children. In fact, the number of children living in poverty would be 25 percent higher without the federal EITC.

• Children in families who receive a credit worth around $3,000 during their early years can see their school performance boosted by the equivalent of approximately two extra months of school. The EITC is also linked to higher test scores, especially in math, for low-income students in elementary and middle school. Children whose families currently receive the EITC also have higher high school graduation rates and levels of college enrollment.

• Children also see increased earnings as a result of their parents receiving the EITC. Children in families who receive a credit worth $3,000 before the age of 6 work an average of 135 more hours a year between ages 25 and 37 and receive an average of 17 percent more annual earnings.

• The federal EITC is linked to healthier moms and babies. It has been associated with increased birth weight for newborns and self-reported improvements in maternal health.

• Young children in families with enough income to cover basic necessities, like going to the doctor when they are sick and giving them breakfast before school, do better and go further in school.

• More than 100,000 children in Hawaiʻi benefit from increased financial stability through the state EITC.

The EITC strengthens the working class that powers Hawaiʻi’s economy.

• When working families struggle, businesses suffer. By helping workers keep more of their hard-earned wages, the credit would directly benefit local businesses through increased consumer spending. In fact, for every dollar given as part of an EITC, up to two dollars is spent in the local economy.

• Additionally, encouraging more financially stability indirectly supports local businesses in the form of more reliable employees with stronger incentives to work more.

• The state EITC benefits employers because workers who can pay for basic necessities are more dependable employees than those who struggle financially. Workers can spend the credit on childcare for their kids and reliable transportation to get to work, helping them become successful employees. As much as 36 cents of every dollar an employee acquires through the federal EITC ultimately flows to employers.

• When workers keep more of what they earn, they put some of those dollars back into the economy when they make purchases. The rounds of spending and re-spending have a direct impact of businesses and their production, employment and income. Businesses can then hire more workers and increase their profits.

• In addition, a study in California showed that for every $150,000 of tax credit claimed, an additional job was created. The state EITC in Hawaiʻi will eventually lead to more jobs in the local economy as well.