{"id":172688,"date":"2023-02-13T15:13:55","date_gmt":"2023-02-14T01:13:55","guid":{"rendered":"https:\/\/www.hawaii.edu\/news\/?p=172688"},"modified":"2023-02-13T15:13:55","modified_gmt":"2023-02-14T01:13:55","slug":"avoiding-disincentives-affordability-plan","status":"publish","type":"post","link":"https:\/\/www.hawaii.edu\/news\/2023\/02\/13\/avoiding-disincentives-affordability-plan\/","title":{"rendered":"Avoiding disincentives in new affordability plan"},"content":{"rendered":"Reading time: <\/span> 3<\/span> minutes<\/span><\/span>

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Problems may be on the horizon for low-income working families in Â鶹´«Ã½<\/span>, but a new recommendation by a University of Â鶹´«Ã½<\/span> Economic Research Organization<\/a> (UHERO<\/abbr>) expert may help to alleviate those issues.<\/p>\n

Policy “cliffs” occur when a large benefit is suddenly withdrawn when income exceeds some threshold, even if by only $1. Cliffs may also reduce incentives to work and earn more. Under a new proposed tax reform plan, these cliffs could impact Â鶹´«Ã½<\/span> residents.<\/p>\n

If passed, the recently announced Green Affordability Plan (GAP<\/abbr>) would be the largest tax reform in the state\u2019s recent history, providing tax relief to all Â鶹´«Ã½<\/span> residents. However, in its current form, the GAP<\/abbr> (SB<\/abbr>1347\/HB<\/abbr>1049) also exacerbates cliffs in Â鶹´«Ã½<\/span>\u2019s tax code. A new blog<\/a> by UHERO<\/abbr> Assistant Professor Dylan Moore<\/strong> explains the problems these cliffs will create, and how the plan can be tweaked to eliminate them.<\/p>\n

Issues related to policy “cliffs”<\/h2>\n

The GAP<\/abbr> contains many provisions targeted to ALICE<\/abbr> (Asset Limited, Income Constrained, Employed) households, particularly those with children. Under the GAP<\/abbr>, a couple with two children earning $20,000\/year who pays rent can receive $1,400 by claiming this credit (up from $200). Consistent with the governor\u2019s focus on ALICE<\/abbr> families, the expanded renters\u2019 credit provides less money to higher income families.<\/p>\n

The problem with this design is the way in which the credit is reduced: via cliffs. For example, this family will lose $400 worth of tax credits if they “fall off” a cliff by earning $60,000 instead of $59,999.<\/p>\n

Experts said cliffs alter financial decisions. Researchers interviewing low-income families facing cliffs in Colorado and California found that many took steps to reduce their income to avoid losing a child care subsidy. Some worked fewer hours, or even turned down raises to avoid falling over a cliff. According to Moore, there is little doubt that some Â鶹´«Ã½<\/span> taxpayers would do so in response to the GAP<\/abbr>\u2019s cliffs.<\/p>\n

Additional cliffs in GAP<\/abbr><\/h2>\n

The GAP<\/abbr>—as currently proposed—creates many additional cliffs. Here are some examples:<\/p>\n