 Aloha and welcome to Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm Keely Akina. Well you know as they say the only thing you can count on for sure in life is death and taxes. At least during the legislative session you can count on taxes and that's what's going on right now. Our state legislature is convening in 2019 and we are taking a look at what's going on in terms of talking about taxes that may be increased, taxes that may actually be created and imposed upon the people of Hawaii. My guest today is an expert in the field. He's Tom Yamachika, the president of Tax Foundation of Hawaii that does a lot of really good work of educating and informing the public of what's going on in the tax realm and also educating our policy leaders. I love the fact that Tom is always down there at the legislature explaining what a bill does, what its intended and unintended consequences may be and talking about how it's doing as a practice perhaps somewhere else in the country. But our guest today has a lot of keen insight about taxes especially during this legislative session so please join me in welcoming to the program Tom Yamachika. Tom good to have you back on the program. Thanks for having me on the show Keely. Well you're not just an expert out there, you're also a friend and I appreciate the work you do for everyone in Hawaii. It's very important work. We try hard. Now Tax Foundation of Hawaii has been around about how long? 60 years. 60 years? You don't look that old but you were there at the beginning. I wasn't there at the beginning no. And basically you've been with the Tax Foundation about how long? So I started in 2014 so about five years. Is that right? And you were with the board prior to that of the Tax Foundation. So you jumped in when one of your very respected members of the community passed away. That's right my predecessor Lowell Kalapa. Everyone knew Lowell Kalapa. Yeah yeah he ran the foundation for decades. Well what does the foundation do Tom? Well what we do is I think you summarize it very eloquently. We try to educate people and politicians alike on what the tax laws they are trying to vote on actually accomplish or what they actually do. So sometimes you know taxes are tough subjects so sometimes people know what they're voting on. Sometimes they're just following others and we want to make sure that they're educated enough to exercise their independent judgment and you know vote purposefully as opposed to just blind. And we also of late have been trying to do the same thing within the court system. That's right. Yeah so we've been getting involved as friend of the court in a number of significant cases. In fact I appreciate the fact that we've been able to go hand in hand Grassroot Institute along with the Tax Foundation. It's been good to work together on a number of issues even in terms of amicus briefs in the court. Speaking of which there's a very famous case that has been going on perhaps a little longer than you'd like and that has to do with the general excise tax being having a 10% amount being skimmed by the state for administrative purposes as it relates to funding the rail. You want to summarize what that case is and where it's at? Yeah as originally enacted when the half percent surcharge on our general excise tax took place you know ostensibly to fund the rail one point that you know wasn't really talked about too much was the fact that the state was skimming off 10% off the top presumably for administrative costs but it turns out that what they skimmed off was far more than any administrative effort would require because they skimmed off 25 million a year and that is comparable to the entire budget top to bottom of one whole department of taxation. So in order for them to administer just one measure they were going to be collecting enough money to fund the department all over again. That's right so so that's why we kind of stepped in and said this is excessive guys something's something's wrong here and you know we filed suit and the suit wound its way to the Supreme Court of Hawaii we argued the case a couple of years ago and we're still waiting for the decision. Well I think that some people would have liked that skim just have gone unnoticed but then Tom Yamachika blew the whistle and what are you waiting for now what's the latest status of the case? We're just waiting for the opinion. Okay well we'll be waiting very eagerly to see what the result is. Yeah and we appreciate the fact that the National Institute are going to make us in our case. Well you know one of the roles that you play is as a watchdog so to speak is taxes can be complex it's often difficult to understand them and they often have unintended consequences not only that they may be promoted as achieving one end but what's not said is what the negative things may happen for example we've got a GE tax surcharge being proposed in the state legislature now about half a percent in order to increase the monies that go to our department of education schools and the UH and the University of Hawaii that's right but so the so the bill proposes to basically hike the tax rate half a percent so from four to four and a half percent that would be the base rate so then you add individual county surcharges so in Honolulu for example we already have a half percent surcharge so that would bring it up to five percent the same would happen on Kaua'i on Maui it would go from four to four and a half on the Big Island it would go from four and a quarter to four and three quarters so that's what's being proposed now I think what happened is you know we had a whole publicity campaign this past summer about you know raising more funds for education through the property tax and the you know the big issue had been not so much that you know there wasn't a problem in in our public schools could there was a problem okay but the way in which the ballot measure was worded it was it was very you know misleading and deceptive and and that's what the Hawaii Supreme Court found and that's why they they kicked it off the ballot well you know what's interesting here is that things are not always what seems to meet the eye the people of Hawaii the good people of Hawaii all of the people certainly are sympathetic toward the importance of providing good salaries to our teachers and quality education to our keiki and so the measure you're talking about this past summer in terms of using property taxes to fund the Department of Education had a lot of sympathy with the intended ostensible outcome but it's not always a case that a measure that is proposed will have that outcome let's talk a bit about this GE tax is there any assurance that increasing GE tax revenues to the educators I mean to the educational establishment in our state is going to result in better salaries for teachers not at all there wasn't even any assurance that more money would go to the Department of Education and and let me let me explain why the you're talking back about the property tax measure of both both okay because the current GE tax yeah because both the property tax measure and and the current one on GE tax would establish a special fund that's to be used only for education so you're telling me that this bill is up for voting on in the state legislature soon potentially and it doesn't say inside of it that if it passes the money will go to give higher salaries to teachers no of course not it doesn't say that no it's it creates the special fund that can be used for education right and only for education you know I mean that's perhaps well and good but the reality is that the DOE gets maybe two billion dollars of of general fund money as is well to me that sounds like an excellent idea if the DOE has already shown that with the billions it has received it has done an excellent job you always want to give more money to institutions that are doing well with the money that they have already but has it been shown that the DOE has done an outstanding job with its funding already well hasn't that that's the second issue so the first issue is will the under either bill would DOE get more money not necessarily so because like I mentioned they have that two billion dollars already being appropriated and you have this special fund coming into existence it it would be very easy for legislators to say okay well let's let's cut some of that one that that two billion for general fund money and and repurpose it we have other priorities in the state we have invasive species we have the homeless we have you know all these other things we want to be a sanctuary city you know a sanctuary state all these things we have to you know deal with climate change all these things we have to accomplish so if let's say quarter billion dollars goes into the special fund what's to say that a quarter billion dollars of general fund money won't be repurposed we don't know okay that's that's problem number one problem number two is there's there's some dispute about whether the department of education is is effectively and efficiently using the two billion dollars that it does have one of the things that we pointed out on in an article that that came out to you know during the summertime was hey there's federal money available you know first for certain things that that most school systems in the u.s. are pulling down specifically you know we provide for mental health services for you know for needy kids and there's federal money available for that right most states pull down you know 40 to 60 million dollars we pull down 500,000 500,000 is that because we're not qualified for more or is it because we simply don't in the proper way go after it and I think it's because we didn't go after it properly um there's a lot of paperwork that has to be or a lot of bureaucratic steps that have to be jumped through to you know access that that federal money um I don't think we did it let's talk a little bit about the mechanism being proposed to raise funds for the department of education quite apart from whether it actually needs that money what is problematic about increasing the g e tax and and how does that really impact the all residents including teachers in the state well um as as you are probably aware the g e t is not only our sales tax equivalent but it goes deeper than that and um so whenever you go to the store whenever you buy a service or a good or almost anything else you're going to be you're going to be charged some g e tax because that's what your store gets it's hit with and they pass you know and and they pass it on to you so the number itself somewhere above four sounds very small as a percentage point but it's very pervasive it's everywhere it applies to everything it applies to goods it applies to services applies to rent applies to royalties uh it applies to interest which you know most of those ladder things sales tax systems elsewhere in the u.s. don't touch them they usually focus on sales of tangible personal property you know or sales of goods you know they don't touch the services they don't touch the royalties they don't touch the rents ours does so it's not limited like an income tax to what your income happens to be you get hit with the g e t every single time you make one of these purchases right it's it's imposed on the business so whenever the business makes a sale tax needs to be paid doesn't doesn't matter whether the business makes money or loses money about on the gross price about how much of our state budget comes from the g e t roughly half about half of it now that's an astounding figure you know when i share that with people for the first time they're shocked imagine that there's this one little tax instrument that funds half of the state budget how is that so well like like you said it applies everywhere so it's very easy to hide not only is it stated on the receipt when you buy something but it's also brewed in the costs and and it's included in the in the gross price of the goods and services that you buy for example um when uh when you go down to this this big store and that big store has to pay rent g e t is imposed on the rent so it gets built into the store's costs well you know tom when you come back from a break i'm going to ask you how that impacts those earning lower amounts of income a lot of times it's said that our teachers aren't earning a lot of money that they're not at the high end of income earning how does a g e t attacks those at the lower ends of income earning my guest today is tom yama chica president of the tax foundation of hawaii we're having a very interesting talk about some of the taxes down at the legislature we're talking about education and the g e tax now but we'll come back and talk about some other taxes as well don't go away aloha this is winston welch i am your host of out and about where every other week monday's at three we explore a variety of topics in our city state nation and world and events organizations the people that fuel them it's a really interesting show we welcome you to tune in and we welcome your suggestions for shows um you got a lot of them out there and we have an awesome studio here where we can get your ideas out as well so i look forward to you tuning in every other week where we've got some great guests and great topics you're going to learn a lot you're going to come away inspired like i do so i'll see you every other week here at three o'clock on monday afternoon aloha i'm jay fidel of think tech our flagship energy show among the six energy shows we have is hawaii the state of clean energy it plays every wednesday at four p.m come around and see us learn about energy keep current on energy on think tech hawaii dot com welcome back again to hawaii together on the think tech hawaii broadcast network i'm kelly akina my guest today is tom yama chica president of the tax foundation of hawaii we've been talking about the taxes down at the legislature being considered to this term and one in particular seems quite onerous and that's the increasing of the g.e.t we ask tom an important question um people say raising the g.e.t won't be felt it's just a tiny fraction of a percentage it's uh a tax that is so small that it's almost unnoticeable how does the g.e.t really impact the consumer especially those who don't have a lot of income well um you said it kelly it's uh death by a thousand needle tricks oh i see you read my grassroot column i do actually um the thing is as as we mentioned the g.e.t applies to pretty much all sales of goods and services uh even those those goods and services that we would consider necessities so you go to the supermarket you buy food um you know uh you buy clothing all that's taxable okay uh and does it does it affect everybody equally no because people who don't have as much money still have to pay for food and and clothing and other other necessities pay rent um and that turns out to be a larger proportion of of of what they make so uh some you know there there's a study done a couple of years ago that said the the tax burden here in hawaii falls upon uh you know the poorest of our population basically double in the proportion that it falls on the rich people like so uh a rich person would pay maybe seven percent of their personal income in state tax but the the poor people would pay 14 percent and the reason for that is the g.e.t so if one of the problems that we're trying to solve is the low wages that our teachers get raising the g.e.t is actually going to make the economy more difficult for them to live in and it's going to impact them more than it will impact those who have higher wages this is what we call regressive isn't it that's right that that's uh the g.e.t is a regressive tax well i'm glad you're down there at the legislature helping to instruct our legislators about the regressive nature now there's another issue that's often thorny and it has to do with transient accommodation vacation rentals and i think a lot of times the public doesn't realize the difficulty is because we're dealing with different jurisdictions we're dealing with the state and we're dealing with the counties and they're not always in harmony what's going on in terms of some legislation being considered in this area oh sure um for the last several years there have been you know constant bickering between the state and the counties because uh you know in in the old days when the transient accommodations tax was established the counties persuaded the state to you know give them give them some of the money so uh in i think the early 2000s the state began giving them a percentage of the g.e.t collections and uh that that money grew over time and the tax rates grew over time and you know finally uh in 2013 or so they said well um we you know we really want uh a revenue source that is stable and predictable that was the wrong thing to say because they then gave them a fixed number that didn't rise with the you know with the g.e.t collections and the rate went up too so that's that's that's when that's when um our g our transient accommodations rate went up to nine and a quarter now the counties of course are saying that the state makes out like a bandit but the counties are left without income that they need for their roads for their services and other things that visitors actually use there's a bill now in place sp 631 i believe what's it trying to propose well you know how uh the counties can enact a surcharge on g.e. tax and you know the uh Honolulu did that for rail uh the other counties have jumped in kawaii now has the same amount as Honolulu and uh big island has a you know half of that amount and Maui hasn't surcharge anything yet but the bill proposes to do the same thing through the hotel room tax so that each county would be allowed to surcharge the transient accommodations tax you know within certain limits and those limits aren't set yet um but that's basically the idea you know rather than coming to the state and comply you know comply uh complaining and crying all the time you know fine take your destiny in your own hands you enact your surcharge you collect it see how it feels how should the public interpret what's going on here what are quickly the pros and the cons well uh it's always kind of going to be a push and pull between the visitor industry and and kind of you know the rest of us on goods and services uh sure we want our counties to have adequate funds to you know maintain our roads and fix our potholes and uh bridges and you know give us good city services take our trash away and that kind of stuff um and uh at the same time we don't want you know to to um scare all of our visitors away so that they go to you know Bermuda or Mexico or or Puerto Rico or you know someplace uh with you know similar kind of uh climate but uh and not here right now there's some fuel tax measures that are a bit confusing to the average person in fact to the legislature i would say that i'm confused by them too but there's one in particular SB 1463 that is talking about shifting from taxing barrels barrel tax to taxing carbon emissions you want to explain what that is all about and give us your background right now we have you know a number of different tax systems that operate against fuel okay so we have a fuel tax which is um applied at certain specified rates on gasoline for example uh and and and the thing about the fuel tax is state can impose one the counties can impose one right um but the but the rates are set for each type of fuel okay so you have a rate for gasoline you have a rate for kerosene you have a rate for a diesel fuel you have a different rate for evasion fuel you have a different rate for um you know other kinds of things but the the one unifying theme of all of that is it's for road usage right so uh it doesn't apply if you're using the fuel to do something that's not using the highways for example generating electricity or working in the farm okay you operate a you know farm tractor you're not using the roads so so there are exemptions for you know for both of those reasons now let me just on top of that interrupt you before you go on to your point there what what's the relative usage between fuel that is used on the road versus fuel that is used not on the road um which is the larger group category i would think it's on the road but uh but i haven't seen those figures in a while sure well you go ahead you're saying on top of this so on top of that they have this thing called the barrel tax and what the barrel tax was initially supposed to do so it was to you know collect money for a uh a disaster fund to be used in case uh we had an exon valdez type disaster and you know have had all this crude washing up on our beaches um but over time it it kind of morphed and you know got a lot bigger and and is now basically imposed whenever you have a fossil fuel that enters the state and uh even if it's not um used whether it's used in the highways or not is irrelevant by the way has this barrel tax which was ostensibly put in place in order to protect us from an environmental catastrophe has it created a fund that we have sitting in our bank at the state several different ones it feeds several different funds some some in the department of land and natural resources uh some in department of health and you know they're like i think five or six different earmarks on the fund and are those funds just sitting there waiting for the disaster uh no they're being used they're being used for other purposes they're being used to protect food security they're being used to protect the environment um the uh uh the department of land and natural resources has conservation officers you know somebody has to pay their salaries you know that's one of the so it's become an important part of maintaining the budget of the state yes well i cut you off here if you continue to tell us about sure so the proposal the proposal is for a carbon tax and what that would do is it would replace the two taxes that i talked about the fuel tax and the barrel tax and it would replace it with a carbon tax which is based on the carbon content of the fuel that you're burning so there's a higher rate for coal different rate for diesel fuel different rate for kerosene all pegged to the carbon emissions that happen when the fuel is burned is this a good measure it depends you know um there are going to be winners and losers one of the losers may be the electric companies because uh electric companies have this big exemption from fuel tax because they don't use the road but a carbon tax doesn't depend on whether you're using the road or not how is the taxpayer ultimately uh if ordinary citizen well if for example the uh the electricity burning is taxed uh it'll it'll find its way to your electric rates sooner rather than later so everything affects the individual of course everything trickles down well tom there's more taxes to talk about unfortunately than we have time and hopefully their legislature won't go on and impose too many hikes on us thanks for being with us today thank you kili appreciate it i do appreciate having my guest tom yaw and shika president of tax foundation of hawaii with us i'm kelly iakina at the grassroot institute until next time aloha from hawaii together on the think tech hawaii broadcast network