 Aloha and welcome to Ehana Kako on the ThinkTech Broadcasting Network. I'm Joe Kent, Vice President of Research at the Grassroot Institute of Hawaii, filling in for Dr. Keili Iakina, President of the Grassroot Institute. The Grassroot Institute is Hawaii's only think tank working to advance individual liberty, the free market, and limited accountable government. And today on the program, we're talking with Tom Yamachika, President of the Tax Foundation of Hawaii. The Tax Foundation is a watchdog that helps keep an eye on Hawaii's taxes. Welcome, Tom. Thanks for having me on the show. Thanks and today we're going to talk about all the new taxes, the blitz of taxes going through the legislature this season. But before we do that, I want to ask you about the Foundation and its mission and how you got started there. Sure. As you mentioned, the Tax Foundation is a taxpayer watchdog agency. We keep tabs on what's going on with the legislature and we're there testifying and giving comments on all of the bills that are going through. A number of the bills are complicated. Tax is not an easy subject to begin with and lots of members of the public and legislators as well have no idea what's really before them. So it's up to us and people like us to try to explain what's going on. If we weren't here, it would just be the tax department explaining the tax bills to them. Some people think that's not balanced enough. Right. Well, at Gratior, we consider an informed electorate and informed citizenry crucial to helping to build a better Hawaii. But along with taxes, there's a lot of big tax increases going through this year. It's almost like if it were a weather forecast, we might say that there's a tornado going through, a tsunami going through right now of tax proposals and some of them are very big. What are some of the biggest ones that you're seeing? Well, you're right in that there are a number of proposals that are kind of swirling around the legislature. Actually, there's more there this year than I've seen in any of the years I've been in this seat. I'm not sure why, but there are a lot of big ones. I suppose that some of it has to do with it. It's not an election year, so sometimes tax proposals go up. But even compared to non-election years in the past, it's still a heavy year for tax increases. It's still a heavy year for tax provisions in general. One of the big ones is our rail tax. Our mayor is constantly on the news and trying to convince the people and the legislators that the surcharge that's right now on Honolulu's general excise tax should be extended in perpetuity. That means forever. And forever is a very long time. So now, just to be clear, we have a general excise tax, and this rail tax is on top of that. It's a surcharge on top of that, but it only lasts for a few years, but now they want it extended. Well, more than a few years. More than a few years. Right now, it extends to 2027. 2027, and the bill wants to extend it forever. Yeah. Well, the mayor wants to extend it forever, yes. And where is that going right now? Okay, so at the moment, it's kind of gone through a tumultuous path. It's first hearing, the current version of the bill, went through the transportation committees in both houses. The House Transportation Committee gave it 30 years, a 30 years extension as opposed to perpetual. Okay, so instead of forever, they knocked it down to 30 years. Right. On the Senate side, they came out with a bill that was very, very confusing, and even the committee report said that there were some contradictory provisions, but their aim was to keep everything alive. So they had a couple of provisions that extended it to forever. They had one that cut it off at a certain point in time, at which point a general half-percent increase in the GET was going to kick in. They also put in a low-income tax credit to mitigate the regressivity of... Now hang on, before you go to the tax credit, you mentioned that they wanted to do just a general GET increase on top of the rail. So we've got the GET, we've got the rail on top, and now you've got another tax on top of that, you're saying? It could be. The way we read it was it would basically ratchet up to 5%. Okay, and it has some credits in there as well. Yeah. So for low-income taxpayers, because they typically will bear the brunt of GET increases because they have to... The GET is imposed on necessities as well. So the general excise tax, to be clear, is a tax on all things, all goods in Hawaii, and that has... And services. And services. And lots of other stuff. And that tends to hurt the poor. Yeah, because they... Well, I mean, everybody has to buy things to live. But when you have less money to start with, you need to spend more of it. Okay, so the rail tax, that's going through, and of course it's... By the time this airs, who knows, maybe it will change again, but it's tumultuous. Yeah, the current version that came out of Senate Ways and Means Committee basically said, okay, look, we've had enough of this. So in the past, we were taking away 10% off the top and keeping it for ourselves. We're going to give that back to you, but that's it. No extensions, no nothing. You make do with what's left, period. That's basically the message that came out of Senate Ways and Means Committee. And the tax foundation, you folks, took the... You had issue with that, and I think you took the state to court over this 10% skim off the top, and you were questioning how the tax, rail tax, would be used. Is that right? Yeah, the basic issue that we had was that, okay, you have this 10% skim that was being withheld by the state, used to fund statewide programs, but only people in Honolulu are paying it. I mean, isn't there something wrong there? And if it was just the cost of collecting the tax on behalf of the city, then we wouldn't mind it so much, but the cost per year is maybe a million, a million and a half, and the state was keeping 25 million. So there was just a slight disparity there. Well, it sounds to me like, I don't know how you view this, but it looks like you may have shifted the issue here. And they actually did take that out of the bill, or at least one of the bills. Well, you know, if you talk to anybody in the state government, they're not going to say that. Yeah. They're going to say, well, yeah, we wanted to help out a little bit. So we're going to help out what we want the city to basically do the hard work. Right. Well, as in a lot of these bills at the legislature, there's good things and there's bad things, and sometimes they're in the same bill. And another tax issue that we're looking at this year is the teacher, the tax for teachers, or you might say education. And this is a tax proposal to increase property taxes on certain types of property and create a dedicated fund for that money to go to education. Now, did that characterize that correctly? Is there more detail? Right. The big issue here is that they want to surcharge property tax, right? Because they're thinking, oh, our property taxes are so low. It's an argument we hear almost every year is that, oh, Hawaii has low property taxes. Which is true. And the reason why it's true is because we generally fund education on a statewide basis. In most cities on the mainland, the property tax goes to support schools. So because we don't fund schools the same way, then we don't tax the same way as the mainland, and that ends up. But now what they want to do is they want to basically take advantage of this low property tax and say, okay, who wants to slap a surcharge on this to fund public education? And the surcharge that they're talking about is kind of substantial, as in the current property tax in Honolulu for residential property that doesn't qualify for a home exemption, it's over a million dollars, is $6 per $1,000 of assessed value, okay? So a million dollar home would be basically a six grand you have to pay. The surcharge would be 750 on top of the six grand. So 650 plus 7,500 would more than double the property tax bill for that particular piece of property. So let's say I'm a homeowner, I own a house in Honolulu, maybe that's costing a million dollars. We might think that I'm very rich, but a million dollar house, that's getting close to the median price for a house these days, and now we're almost doubling the tax on them. Okay, but you gotta remember a couple of things, okay? This bill has basically two pieces. One is a constitutional amendment, and the reason why this is important is because the voters have to vote on it, okay? But so in other words, even when it passes through the legislature, the voters still have to vote on it in order to change the Constitution. Right, because the Constitution now says the property tax is exclusively the province of the counties, right? They own it, they can do what they want, okay? And if we want to take any of it for a statewide purpose, like education, then we have to change the Constitution, okay? So there's one bill to change the Constitution, and second, there's a second bill to implement the constitutional amendment when the Constitution does get changed, okay? One bill to create the fund, the other bill to fund it, basically. Well, one to create the taxing power. Right, right. And the other one to use it. Okay. Okay, but the thing that you gotta remember is that the two don't necessarily have to be related, okay? So if they say, oh, vote for this constitutional amendment because we're only gonna tax the rich. The bill might be changed the following year to tax everybody. If you give the power to the legislature to do the surcharge, they can use it any way they want. So basically the question for the constitutional amendment is, are you going to let them raise taxes or no? They may phrase it very differently for you. Right. Do you want to help our kinky? Yeah. You're saying that, let's say it goes through the legislature and now it's up to voters to change the Constitution to vote on this constitutional amendment. Well then they can come through with a, let's say a television campaign with, says vote yes, vote yes, right? Because the opponents of a tax increase wouldn't have the money to do these specialized campaigns perhaps. And so it's very likely that voters will vote yes for more money for kids when actually they're voting yes on a tax increase and they may not even realize it. That's the danger. Right. Yeah. Okay. Well, that's the other big tax increase and we have even more. There's online taxes, Airbnb taxes and even Obamacare in the mix. What do you think about all these new sort of tax bills? Well, there are some bills that are out there to assist with collection of tax that's already owed. Okay. Like in the online or e-fairness type of situation, this is like where you're buying things from Amazon or another online solo that doesn't have any presence here. Now, before we go on to the collection of online taxes, we're going to take a short break and when we come back, we're going to be talking about Amazon. If you buy something on Amazon, should you be taxed for it in Hawaii? Don't go away. We'll be right back. Hello. I'm Marianne Sasaki. Welcome to Think Tech Hawaii, where some of the most interesting conversations in Honolulu go on. I have a show on Wednesdays from one to two called Life in the Law, where we discuss legal issues, politics, governmental topics and a whole host of issues. I hope you'll join me. Hello, ha. How are you doing? Welcome to Apache Talk. I'm here at Gordo, the tech star on Think Tech Hawaii. I'm here with my good old buddy, Andrew, the security guy. Hey, everybody. Thank you for watching. Good to have Andrew here in the house. Please join us every Friday from one to one thirty and follow us up on YouTube. And remember, as we say at the end of every show, how are you doing? Hello. This is Martin Despeng. I want to get you excited about my new show, which is Humane Architecture for Hawaii and Beyond. We're going to broadcast on Tuesdays, 5 p.m. here on Think Tech Hawaii. You're back, and you're watching Ehana Kako on the Think Tech Hawaii Broadcasting Network. I'm Joe Kent, filling in for Dr. Kelly Iakina. We work at the Grass Street Institute of Hawaii, Hawaii's public policy think tank working to defend individual liberty and limited accountable government in Hawaii today. We're talking with Tom Yamachika, president of the Tax Foundation. Tom, we left off by talking about Amazon. So I'm going to go online in Hawaii to try to save money. And I'm going to buy on Amazon instead and get the free shipping and get a good deal. But now... But what the law actually says is if you do that, Amazon is not liable for our tax, because they have no presence in Hawaii. So you as the buyer are legally obligated to pay the 4 percent. So in other words, I'm supposed to, when I buy something online from Amazon, I'm supposed to pay a tax to the state of Hawaii. That's right. That's your legal obligation. There's a form to do that called the G26. Most people don't know what the form is and have never paid this tax. So rather than having the tax office try to go after everybody, it would kind of keep them busy for a very, very long time. They would rather have the seller basically withhold the tax and pay the state on everybody's behalf. So it's just kind of one big check coming in, several little rinky dink checks. Right, but there's a problem with that, which is that there's not many states that do this, and Amazon isn't really used to doing that kind of thing, except for maybe a few states. Well, and the reason is because there's a federal constitution, and the federal constitution says that you have to have a certain amount of connection with the state that you're selling into before you require to fulfill the tax obligations. So Amazon is taking advantage of that case and is basically saying, look, we don't have physical presence in Hawaii, so you can't touch us. And by the way, we're not just talking about Amazon. We're talking about all online sellers in a way. Whichever doesn't have physical presence here, so I think LL being overstocked, a number of the big and small, and the way that the state is trying to combat this issue is they're pushing a bill that says, okay, fine. But if you have more than $100,000 of sales into the state, we are going to consider that you have purposefully directed business to Hawaii, and we're going to treat you as if you have a presence here, and we're going to go after you. Other states have this type of legislation in place, and the result has been that a number of online sellers have come to the table, and they've come to the state, and they've negotiated with the state regarding collecting on behalf of all of these little buyers. Now, we are one of six states where there is no such agreement, at least from Amazon's perspective. So other states that have done this have actually received tax money from Amazon. They haven't gone through any court battles or legal battles about the law, but they've just, Amazon's voluntarily paid these taxes, is that right? Well, there may have been some court proceedings, but none extended. Right, nothing at the Supreme Court or anything. Yeah, no big, big fights. Right, so, but to me, that makes me worried about, well, I really like my Amazon Prime account. I like my free shipping to Hawaii, and I wonder if Amazon, for example, would figure out some way to increase the price for me, but of course that's... Oh, they'd put the tax on the bill, like they do for everybody else. Oh, right, they could just put it on the bill for Hawaii residents, for example. Yeah, like they do for any other state, the chart is the same. Interesting. Okay, well, at the legislature, well, we've been talking about some of the big bills, but there's a lot of kind of little bills that are very similar along certain themes, and one of the themes that we're seeing is Robin Hood. Should we take from the rich to give to the poor? Should we try to give exemptions to the poor and get it paid for through, you know, by taxing the rich more? What are your view of some of these bills? Well, obviously you want a tax system to be, you know, progressive. You want, at least in some capacity, people to be taxed in proportion to their ability to pay. The GET doesn't do that, because it's one rate for everybody, for whatever transaction almost, and the income tax does do that, but the way the income tax is set up right now, you have antiquated brackets, and they try to make up for them, for them with, you know, credit for this or credit for that or credit for the other thing, and it's getting to be a real mishmash of stuff. So I'm thinking that a better way to do that would be to get rid of all the little credits and to overhaul the brackets, because really, it's madness to tax people at the poverty line, and get them off the tax system. They really have no need to file a return, which is one of the most complicated government documents that ever exist. You get rid of the processing costs, and you'll have a lot more money to go around. Okay, when you say antiquated brackets, you're talking about, there's inflation, and our economy changes, and it doesn't fit with the brackets. We start taxing people at $3,000. And that historically used to mean more than it does now, where the brackets were set in the 60s. Wow, and they haven't been changed, those levels haven't been changed. Yeah, I mean, there have been things added to the top that subtracted from the top, but the lower brackets. The bottom is the same. Yeah, has been essentially the same since the 60s. Okay, and what about the, just let's say I'm in poverty, and I have a family, and... You're probably in the fourth bracket. So let's say... The fourth from the bottom. And let's say I'm in that bracket. What's wrong with giving me a tax credit or something that I can get some money back, and even though it adds some complexities? In other words, what's the problem with complexities? Number one, are you going to file a return? If you don't, you lose the credit and they can come after you for the tax that would have otherwise been offset by the credit. Okay. So a lot of people in that income level are not rocket scientists. You can try to make the tax form simpler, but it's still a tax form in it. It scares the daylights out of people. Yeah, it scares it out of me too, and I'm not even in that yet. So you have to make sure you're reaching everybody. You have to make sure that people are actually filing returns, which is, I think, a really big leap for some. Why do you think that this year, switching topics, we've seen all these tax increase proposals going through, why do you think that there's such a push to increase taxes this year? Whether or not you know it, we're in an economic crisis. Why? Number one, all of our union contracts are re-negotiations. All 14 public employee unions contracts are expiring, and that means they're negotiating for higher salaries and higher benefits, and that's going to be more money. Right. And we told them right after the fiscal year ended, hey, we have a billion dollar surplus. And they all got the knives and forks out. That's right. And then the very next month, they spent 1.3 billion. And so they then came to the unions and said, we have no money. And the union said, what? But that's the story that they were trying to sell the union members. Right. Okay. And of course, nobody was buying it. So 1 billion dollars went poof in one month. And the unions were crestfallen, to say the least. Well, and the administration was proposing no increases for the next couple of years, which to any union is a non-starter. Sure. It's a non-starter. So that's part of the reason for the tax increase, but there's other second reason. Consulate revenues, which is basically developing our budget assumptions for the state, they revised the revenue forecast, they knocked it down quite a bit. And that opened a $155 million hole. In other words, the council on revenues, you can imagine, they look at a crystal ball and they look to the future and try to predict how much tax revenue the state's going to get. Right. And under our state constitution, our government is supposed to be run by those predictions. Right. So they have to use the prediction the council on revenues did. And they are showing that we're going to get less tax revenue in the future. Right. And so that's another push to increase taxes. Well, they're budgeting based on the higher number. Right. And COR comes in and says, oh, it's actually here. And they go, oh, what are we going to do with this? Yeah, yeah. So they're trying to make up the difference. And the last, maybe, pensions. Yes, public pensions. We have pension plans that basically promise a lot of things to present and retired state employees. We promise them health benefits until they die. We have defined benefits for them, which is a set amount that's coming up per year, irrespective of how the market fares and irrespective of how healthy the state is. But the irrespective. It promise this amount of benefits. It's not how much we put in. We get a certain amount. We're promised a certain amount out. Right. And the question then becomes, how do you value that in the present day? We had been using a 7.5% discount rate, which is very high. The actuaries who looked at the pension plans said it's too high. And they knocked it down to 7%. And that made the pension go from the unfunded liabilities go from $8 billion, up to $12 billion, and hence the need for more tax revenues or the push for it anyways. Yeah. Obviously, if the debt is much bigger, you need to spend more every year to amortize that debt. And I need to cut you off there, because we're at the end of the episode. I want to thank Tom Yamachika from the Tax Foundation. Thanks so much for joining us. Thank you, Joe.