 This is Stink Tech, Hawaii, Community Matters, who, bingo, were back the one o'clock block here on a given Wednesday with Tom Yamachika. And if you hadn't noticed, we're talking about talking tax with Tom. Welcome, Tom. Welcome. Thank you, Jay. Thanks for having me on the show. Sure. Tom is the president of the Tax Foundation of Hawaii, something we should all know about, and something we should all participate in, the conversation over tax, because it affects every single one of us directly or indirectly. So here we are, let's say it began only, what, two weeks ago. Yep. And what I tell people is, like, when the litigistates are in session, nobody's safe. Yeah. No man's life or property is safe with something along those lines. So, you know, what's coming down the pike? I mean, let me ask you before we get to the ridiculous bills, which we will get to, about zero-based budgeting, because this is something you don't need a statute for. This is something that Sylvia Lukas, the chair of the House Finance Committee, can sort of do by budget-planning fiat, as it were. And yet it will have a huge effect on the way we budget, the way we collect, the way we spend, no? Yeah. The traditional way that government agency's budget has been you take what was approved last year, and you add or subtract, mostly add. And you justify the variance or explain why, you explain any variance, okay? But the problem has been that there are a lot of things that are in the budget because they were there before, and you don't know why. But nobody in the department may know, so they just kind of put it there and say, well, you know, it was approved last year, so it must be good. Is this a special fund problem, or is that a separate problem where you had little pockets of money tucked away hither and yon? It's a separate problem, but that problem exists as well. Matter of fact, just a couple of days ago, the state auditor came up and said, hey, we found big pockets of money in the Department of Transportation, over $100 million. Oh, wow. So it was kind of enough to blow people away. With scrambling for every dime, and the whole thing is one crisis after another, and meanwhile we have $100 million in these little pockets. Yeah, not so little as it turns out. Not so little, yeah. So zero-based budgeting is a way to say, OK, agency, you have to start from zero and justify every penny you want. What are you going to do? How's it going to benefit the people? And if you can't tell me. You don't get it. You don't get it. That's going to change the way. I mean, the fact is that up to this point, we have abused the system. We have kept money. We didn't need. We have budgeted money. We didn't need. We've spent money. We didn't need to spend. Spent money. We didn't need to spend. Are we talking here about the kind of situation? Well, it's the end of the fiscal year. You have extra money in your budget. Spend it now. I don't care if it's useful or not. Spend it now. Because if you don't spend it now, you won't have it next year. That's right. That's what we're talking about. That's another dimension of what we're talking about. Yes. Well, this is going to change things in government in general. All of a sudden, there'll be some discipline about this. And from that point of view, it sounds pretty good. But is it? Well, we hope it'll be. I mean, right now, we're at the situation where there are certain agencies or divisions within agencies that really just thumb their nose at the process. And they're supposed to, by law, write down measurable goals for what they do and the variance report comes in and says no data, no data, no data, no data, no data. And I've called out the airport's division for this. So their justification for that was like a few years ago, I think, in the 2015 timeframe, they said, well, you know, we really don't have, you know, these are antiquated measures and we're just, they're not useful anymore. So I mean, like measures like, oh, are the toilets working? Or how much does it cost per passenger mile to touch down or to take off? And I'm thinking, you know, it's not relevant. Why is it not relevant? You know, people complain about the toilets even today. And they said, well, you know, this measure is outmoded and therefore we won't be submitting data. So they didn't submit data, which is when they stopped following the law. Uh-huh. They're going to have a comeuppance on zero-based budgeting. Well, maybe. One thing about airports is they're thinking about forming an airport's corporation like an authority. Yeah. An airport authority. An airport authority. That is alleged, is thinking about that? Yes. Well, that might be an improvement because, I mean, I know a lot of people say, let's not put layering on government because it always costs a lot more and it's not necessarily helpful. But in most other places, there are airport authorities and they have, you know, special powers, special abilities to do special things. And our Department of Transportation and the airport especially has not kept up. They're way behind. Maybe an airport authority would help. Maybe. Another issue that's come up time and again, and there are three bills that are going to be heard soon about this, is, you know, in the classrooms, teachers have to spend their own money on school supplies. And the proposals of the legislature are to give them some kind of tax credit for doing that. The teachers, the individual teachers? Yeah. Because if they want to get reimbursed through the system, it takes six months. If they buy, you know, a construction paper or pencils or, you know, wherever it is and they submit a receipt for, you know, $1.95 for reimbursement, it takes six months to get through. I remember I was a member of the Board of Directors of HTDC back in the, in the Aught years. And if you took a trip, which was probably unnecessary anyway, to go to a Board of Directors meeting at, say, Nelha, the Big Island, you know, an ex-officio of that board, it would take six months to get reimbursed for your parking, your $8 parking at the airport. And he said, how many hands has this, you know, requisition taken? I mean, how many people have been involved? How many hundreds of hours have been spent on approving my $8 requisition for airport charge? Yeah. I mean, that part is simply broken. Yeah. It's just broken. Yeah. And something's going to be done. Yeah. And so we're talking about a whole bunch of things, but it somehow all relates to zero-base spending because, I mean, because that's a good way to start, don't you think, for creating a discipline that we need in state spending? Yeah. We need to know how much government really costs. And if it doesn't cost what we're paying for it, then we should stop paying the excess. Yeah. But it sounds like a lot of work, doesn't it? It is a lot of work. Sylvia Luke and her staff and, you know, they're going to have to struggle for every line of that budget. And the departments, too. Yeah. They have to answer a lot of questions. Yeah. Yeah. So, well, that's going to be happening this session, isn't it? We hope so. Yeah. We'll see what happens. So you have a whole bunch of bills that are worth mentioning to get the flavor of the session. What have you got, Tom? Well, we have, like the usual revenue raisers, there are bills to raise every tax. There are a couple of bills to raise the GE tax, half a percent. One is for education. One is for, you know, whatever. It doesn't really say. There are bills to enact a carbon tax. Some of them are, you know, in lieu of, you know, the four or five taxes we currently apply to, to, to, to fuel. To enact the GE, I like it. Yeah. And that probably is okay. But there are also bills that would add carbon tax on top of everything else that we're, that we're making our, our, our poor motorists pay. As if it were unrelated. As if we're unrelated, yeah. There are bills to increase the estate tax. There are bills to increase the conveyance tax. There are bills to apply the conveyance tax to rentals under five years. You know how many of those there are? Huge number. And for how much tax a piece? Yeah, peanuts. Yeah. I mean, we kind of calculated that if you taxed a one-year lease for $1,000 a month, the tax would be $17.43. For that month? I know, for the year. For the year. For the year. So that's a lot of labor for just a few cents is what it amounts to. Is the tax office prepared these days to, you know, to use computer power to do that sort of thing or will that just create a whole need for a whole new labor force? Well, they have a new system and we don't know what the capabilities of it are. That kind of remains to be seen. But I don't think they want to be bothered with, you know, $10 and $20 transactions and hundreds of them. Yeah. And you know what? That kind of thing is bad law. It's a bad bill and it's bad law. Because why? At the end of the day, it won't be enforced. It won't be enforced. It's a problem. Yeah. I mean, how do you do that, right? There's a bill entitled Tax Fairness. And you know, with a title like that, you can always cringe. I mean, I do anyway. What does that mean? How about void for vagueness? In this case, tax fairness means increase the income tax a couple more points. So the top rate would be 13% instead of the 11 that it is. The income tax. That'd be the highest in the country, though. Maybe just a shade under California. But I think we're number two now, which we're just like really trying to be, really trying to be. We'll be number one. We're number one in something, eh? Yeah, yeah. I mean, they talk in education about race to the top. Yeah, we're doing a race to the bottom. So that kind of thing. So where does this stuff come from, though? Who's putting these bills in? Various people. I mean, there's no particular source for any, you know, I mean, there are people who, you know, sign the names to introduce the bill, okay? But we don't know if it was their idea, or, you know, somebody kind of slipped to them and said, you know, introduce this for me. Well, who, but who would want an increase in tax? Who would want new taxes? I know it's not the tax foundation of Hawaii, and it's not most people I know. But who would want an increase in taxes? Unions, for example. They would want more money to give their members raises. So a lot of times the unions do push tax increase bills. How about the tax office itself? You know, as the tax office, does it make an evaluation? Does it look at, for example, the council of revenues and the potential budget and say, hmm, we need to raise more money. And so the tax office make the calculation. We need X dollars, extra money. So we're going to trundle down to the legislature. We're going to ask them to raise the rates on something or create a new tax so that we can have the money we think we need to meet a bigger budget based on the council on revenues. No, that's typically not what they do. Who does that? That's kind of a higher level budgeting, so budget and finance governance office. But what the tax office does do is they are supposed to score individual tax bills, in other words, how much is this going to make? What is, how much money is going to be brought in by this particular bill? The economic impact of a given bill, that's hard. Yeah, and they don't tell anybody what it is. Really? What was there a reason for keeping it secret? I'm not sure, they just don't tell the public. If somebody asks in an open hearing, they'll answer. If you asked, they would answer you. But you're the tax foundation of Hawaii. And I'm going to give you one minute to think about what that means and to develop the implications. We're going to take a one minute break. We're talking tax with Tom, Tommy Michika, president of the Tax Foundation of Hawaii. Take a minute, we'll be right back and we'll continue with some of these other very interesting bills that are scary. We'll be right back. This is Think Tech Hawaii, raising public awareness. For more than 100 years, American Humane Association has been teaching kids to be kind to animals, those in our homes, on the farms, on the silver screen, and wildlife conservation caring for the world's vanishing creatures. But we can't do it alone. Visit kindness100.org to find ways to teach kids how they can make a more caring, compassionate, and humane world for all of us. Hey, Aloha, and welcome to the Think Tech Hawaii studios. I'm Andrew Lang, the host of Security Matters Hawaii. I'm airing here every Tuesday at 10 a.m. Hawaii time. And I'm trying to bring this community information, security information specifically, that will help you live a safer life, help keep our community safer, and help keep our businesses safer. So join me because Security Matters, Aloha. Two, one. Okay, we're back. I told you we'd be back. We are back with Tom Yamachika talking tax with Tom about the bills in the legislature here in the 2019 session and what they could mean for you. No man or woman's property is safe when the legislature is in session. And this is no exception. And there are some bills from whence we do not know how they came. Seeking tax increases and new taxes of all kinds. So Tom, what else you got? Well, okay. So in addition to revenue raisers, there are tax credit bills. And a lot of times, legislators put in tax credits to encourage good social policy, but some of these ones kind of have your head scratching. There's a credit bill to award a tax credit for people who live within 10 miles of their working place. And I have my doubts about this one because people already have lots of motivation to live within 10 miles of their working place. It's called traffic. Right. So you're trying to incentivize somebody to do something he would always do anyway. Yeah. Then there is a bill that awards a credit for people who run a business out of their own home. And what's the philosophy behind that one is that people who run such a business must be impoverished because they can't even afford to rent their own office. I don't know. But they're already incentivized to run it out of their own home. They don't have to pay business rent. That's right. So why incentivize them twice? I have no idea. And then here's one of my favorites. There is a bill to establish a food expenditure tax credit. Okay. The bill says the credit's based on adjusted gross income, but there's no table or schedule to tell us what the effect would be. There's also language saying what are qualified food expenditures. So food counts, dietary supplements count, food doesn't count, alcoholic beverages don't count. Anything coming out of a vending machine doesn't count. And tobacco doesn't count. Okay. And they expect the taxpayer to total all this up by themselves and to put in a claim for the food expenditure tax credit. That's not going to happen. That's unenforceable debt on arrival, so to speak. And we know it's not going to go anywhere either. But let me intercede this thought. There are what? 2,500, 3,500 bills that go into the legislature every year. And there's a lot of cockamamie bills that go into the legislature every year. And they're actually introduced by legislators, by accommodation, by request, by some constituent, comes around and says, hey, here's my pet bill. Would you introduce this? And the guy does. And then you have staffs of hundreds of people working on these bills and passing paper back and forth and spending time on them, either accepting, rejecting, having hearings, having a political process over them. And I have a problem with that. It gets in the way. Silly bills get in the way of what we really need to do. If I tell you that homelessness is a crisis, if I tell you that the economy is one-dimensional and needs to be attended to, then, you know, that's what we should be focusing on. But when you have silly things, my definition, you take away, they suck the oxygen out, you know, and then you can't focus on what you really need. Is there any system where a legislator can say, you know, thanks, thanks, whoever you are, for submitting this cockamamie bill to me, but I am not going to introduce it. I say no to you. I know you're going to vote for me again, but I say no, I'm not going to introduce that bill. Well, it'll take a lot of courage for the legislator to say that. It would be better, I mean, if I were in their position, I'd introduce the bill, but I would, like, forget about it after that point. You know, when I went to law school, I remember one of my teachers, you know, he said that when the legislature, I think I told you this before, when the legislature, you know, adopts the bill and really means it, it should say at the bottom, right near the effective day provision, it should say this one we really mean. And if it cares passionately about the bill, it says we really, really mean this one, okay? So it's harder to repeal it that way and it's harder for a court to ignore it and so forth. Now, on the other flip side, maybe there ought to be a system where the legislator gets the bill and has a little code, and he writes that down right near the effective date and everybody knows that he can, he's doing this to accommodate someone, he doesn't believe in it, he doesn't want it, but he's just one, he's accommodating someone, but don't pass this one, I don't really mean it. Don't pass this one. So it's a code that basically says, you're right. Unfortunately, that would get to be public and it wouldn't be so good. Right, so there are, you know, bills that attempt to solve real problems. Like, there is a bill that wants the counties to authorize construction of new housing units and it basically gives each county a numerical target and if the county does not make the numerical target, there is a $1 million penalty enforced by withholding what otherwise would be paid to them from the transient accommodations tax. Oh, so does that cost the taxpayer less or more? Well, the state would presumably have the money if they don't pay it to the county, so the cost of the taxpayer is probably going to be the same. You know, the county is going to be in tough shape, though. Yeah, so it just moves the money from one to the other with no significant effect. But you know the other thing is that, you know, talk about the committee that decides the economic impact of tax bills or any other bills. You know, if there is an economic impact of creating more bureaucratic jobs, more bureaucratic levels and layers and organizations within government, more people who make a career on this and who can retire on this and have claims against the employees' retirement system and the like on this for free medical for the rest of their lives and so forth, which the taxpayers have to pay at the end, that should be factored into any bill, especially a cockamamie bill, you know, which is going to create a need for bureaucracy in attempts to enforce it, don't you think? Oh, yeah. Obviously bills that create, you know, bigger and bigger government are going to be favored by the unions, so they'll push it along. But at some point, you know, somebody has to say, hey, government's big enough. You know, we don't need this. Our taxpayers can't afford it. Stop! Where does that come from? Who says stop? You, maybe me? Who else? That's it. You know, who has the, you know, the hornies to say that? That would be good though if we had somebody who said that. No more. Stop. Could be a committee chair, it could be the governor, it could be a department head for that matter. Somebody with real leadership. It's a risk, yeah. Well, you know, I mean, I keep thinking about Puerto Rico. Okay, first they ran up, you know, 50 billion, then 60, then 70. We saw it growing and then they had their storm, which we could have too, which really cost them not only, you know, the ability to repay the Puerto Rican debt, right? But it also cost them the opportunity to earn the money, to have the tax base, to generate the taxes to pay the debt, you know? Right. One thing that I've been trying to tell legislators is that, you know, you can't just focus on taking. You got to focus on the economic engine because the economic engine is what produces the money part of which goes to them through taxes. But if the economic engine ain't going, there's really nothing to tax. Right, right. And then you can't pay your bills. Yeah. This is very bad. We have to keep our eye on that. It's a futuristic thing, but it's coming closer every year, as far as I can see. So, you know, what about bills that you like, Tom? Do you have bills, tax bills out there in this session? No, please. You know, I don't think the bait and switch thing is going to be, in fact, the Supreme Court said now, you can still do bait and switch. I mean, replace and switch, right? I got to replace, yeah. So we're still going to have surprises. But for the most part, is there anything pending right now early two weeks after the opening that you like? You know, we don't really take positions on bills. You know, there are some that make sense in terms of being consistent with policy of the law, as it now exists. I went to a hearing this morning and I said that, and the chair was, like, amazed that I was, you know, in favor of anything. I even sounded like I was in favor of something. It's okay to be in favor of something, Tom. It's okay. Yeah. So, yeah, the other thing I was going to ask you, and it's not a tax question so much, but there's a push now in other states and here, and I got an email from Gary Hoosier in Kauai. He's pushing for a huge big whopping increase in the minimum wage, which, you know, I mean, it all sounds swell if employers had the money to pay the increase in the wage, and if the economy were robust enough to do that. And it's like it operates on the assumption is all you have to do is squeeze the employer and money will pop out. Isn't that wonderful how that works? How will it work, in fact, if you raise the minimum wage by what Hoosier was talking $15? Maybe it's more. I don't know. What happened? What's the process? How do you feel about it? Well, I mean, I'm a small employer myself. And if having workers gets too expensive, I can't do it. So there are basically two ways to react to a hoist in the minimum wage. Either you pay it or somebody loses a job. Or you fold. Yeah. You fold the company. Well, this is no longer feasible. Well, that is probably like the very, very last resort. But I think the first two reactions would be either A, pay it, or B, get rid of the employee. I think it has a chance to pass. Seems to be plenty of interest. There's plenty of interest. Even the Department of Labor has a bill that would A, raise the minimum wage in increments and B, provide a tax credit for small employers who are paying minimum wage. Really? Yeah. It's something for everybody. Yeah. I'm just kind of not sure how that would work. I don't shake in my head. You have to pay more, but you get a tax credit. So at the end of the day, you're static. No change. And when I looked at that particular bill, it had drafting errors in it. So I was wondering, jeez, how full-baked is this idea anyway? Yeah. I mean, it certainly didn't score high on the credibility score. Yeah. So far, in terms of the substance of the bills that you've seen on tax this year, here we are, two weeks in, how would you compare, this is a hard question, Tom, how would you compare this legislature as against, say, the one last year or the year before? Well, I think last year there was a whole lot of stuff that was put into the hopper and being digested. There was so much that I was working most nights and weekends just to keep up. Find out what was there, because it's not so easy to know what's there. Yeah. I mean, things get buried sometimes on purpose. You mean to get buried in another bill? Or like a 500-page bill, the tax provision is on page 251. Yeah. Something like that. Not necessarily relating to the substance of the bill, either. Well, that's it. The bill's titles are extraordinarily broad. Yeah. So for example, a bill to legalize marijuana might be a bill that's called relating to health. And in page 251 there's something about taxing marijuana. That's right. You'd never know unless you read the whole bill. That's right. So how do you find out, how do you find out when there's a provision that affects your Juliana in terms of state tax? How do you do that? Do you have to read every bill? Basically, yes. I mean, we have, you know, some shortcuts, like if a particular section's affected and the section is in our taxing chapter, then, you know, then our tenant goes up. Can you ever refer this out to somebody like the Legislative Reference Bureau and say, my name is Tommy Yamachika. I'm the president tax foundation of Hawaii. Can you tell me all the bills that deal with tax this year and have them do the research for you? No. Okay. They would laugh at me. You want me to do your work? Yeah. Exactly. So what are your predictions for how this session is going to do? Do you have any idea? You know, at some point, we get a handle on the unique persona of every legislature. So this is the 2019 one. How does it look to you now? Well, I'm really hopeful about what, you know, Sylvie and her staff are doing on the budgeting side and hopefully the, and what the Legislative Auditor is doing, you know, if they uncover lots of stuff, like lots of money that's been sitting around doing nothing, then we can kind of breathe the sigh of relief because they can kind of use that stuff and then not turn to taxpayers again. Because, you know, really, the one thing that I'm afraid of is that whenever, you know, there is any kind of, you know, real or perceived shortfall, somebody is going to say, oh, well, the taxpayers can make it up. Let's just increase this or increase this. It's elastic. If anything, squeeze it. Yes, just squeeze harder. Squeeze harder. The taxpayers aren't dry yet. Squeeze them harder. What about that bill? Last question, and I'm always curious about that. What about that bill that would ostensibly tax REITs? You know, make them subject to a Hawaii state income tax as an entity. We had a very, very spirited debate this morning in Angus McKelvie's committee. There was a whole host of people attending that bill and, you know, there was a lot of good discussion. It was, you know, the main part of the debate pitted Peter Savio, who's, you know, a local real estate developer. He's very passionate about this. And the gentleman who's the, basically the GM of Al Moana Center, who's also very passionate about his position, and they are going at it. And the REITs are down there. I mean, they've got to be down there. This is right in their area of interest, for sure. Oh, yeah. They'll pay a fortune if that bill passes. Yep, exactly. So they want to avoid that as much as they can. On the other hand, there are those who feel that it's a loophole. It should have been done a long time ago, yeah. There are those who feel it's a loophole. It's a loophole. It has been. And it needs to be fixed. Yeah. Well, I'm so glad you're down there. I know it must be hard. And I know you must sweat it out for what, five months every year, tracking through on what's happening or not and trying to give us information about how things are going. So I hope you have time to come back and talk to me some more about these things, because I know there'll be chills and spills and surprises going forward. Oh, there absolutely will be. Thank you, Tom. Thank you, Jay.