There has been much debate during the legislative session regarding distribution of the budget surplus. The issue is critical since it forces us to evaluate alternatives for providing needed tax relief to Hawai'i residents.

Some recent findings on the federal earned income tax credit may help shed some light on how a state-level EITC might be an innovative and elegant way to provide tax relief to Hawai'i's residents with the greatest communitywide bang for each state buck expended.

In general, state-level EITC programs around the country run the gamut from 5 percent to 40 percent of the federal amounts. Nevertheless, the structures are similar and generally result in four proven benefits to poor people: poverty reduction, labor force attachment, personal investments in the future and investments in poor and distressed neighborhoods.

In addition to these commonly discussed benefits, my own research has shown that these federal investments result in job creation in the retail sector, as the working poor use the credit to purchase goods and services. This job growth typically occurs at the "neighborhood" level, but other studies have found that the EITC results in job growth at the county level as well.

In Los Angeles, for example, the EITC independently contributed roughly 1,700 jobs to the poorest neighborhoods in the county and many more than that to the county as a whole. If structured correctly, a Hawai'i state-level EITC is likely to benefit everyone secondarily through its economic development effects.

From a legislator's point of view, expenditure of state dollars must be efficient and effective. Because of these secondary job-growth results, the EITC is the most effective mechanism to channel some of the surplus back to the people of Hawai'i.

Think of it this way: In targeting the poor, the EITC is channeling public dollars to residents most likely to spend it and keep it circulating within the state. In fact, studies show that 65 percent of recipients spend the lump sum on consumer goods and services and that 70 percent invest at least part of the credit in future opportunities that enhance social and/or economic mobility (e.g. education, training).

Other mechanisms to redistribute public surplus are unlikely to approach the economic impact of spending by the working poor. Since a tax rebate to wealthier and middle-class residents is a smaller portion of household income, it is likely to either be folded into savings or as a marginal increase to existing goods and services.

Such marginal spending is unlikely to create jobs in the same way that the kind of spending EITC recipients has been shown to do. In addition, the sliding scale structure of the program combined with the incentives for work ensures that recipients are the most industrious of the working poor.

One of the concerns of legislators across the country is that the EITC and similar "people-based" programs bring few benefits to local officials representing poor urban districts. Moreover, the working poor are often the least engaged with government. But highlighting the role that the EITC or programs with similar structures play in economic development provides an important link between locally elected officials and their constituencies.

The federal EITC is a much more effective mechanism for distributing budget surpluses than general tax rebates because of the proven secondary effects on the economy. Of course, state EITC programs are only a fraction of the federal amounts. Nevertheless, the more generous state EITCs of 40 percent of the federal amounts are also likely to have significant economic development effects.

For example, a California EITC of 40 percent of the federal amount would have produced about 800 additional jobs in addition to the 1,700 contributed by the federal EITC program to the poor areas alone and many more to the county as a whole.

Even more important than these estimates, however, is the principle of putting public funds in the hands of the working poor. Prioritizing EITC-eligible residents, those most likely to spend credits locally and with the greatest benefits on economic development, is a sound framework for designing the needed mechanisms for providing tax relief to the residents of Hawai'i.

There are many ways to design a mechanism for redistribution of the surplus, and some need not be modeled precisely on the EITC. However, to ensure the most effective vehicle for redistribution, legislators should stick to the principles of prioritizing distribution to the working poor and preserving the sliding scale eligibility and work incentives.

I am part of a task force that will make recommendations on economic development policy to the new mayor of Los Angeles, and I have made a similar case to his office. It is no coincidence that this is the most popular antipoverty program on both sides of the aisle.

James H. Spencer is an assistant professor in the department of urban and regional planning and in the department of political science at the University of Hawai'i-Manoa. He wrote this commentary for The Advertiser.