 My goodness gracious, it must be Monday. Tom Yamachika is with us, the president of the Tax Foundation of Hawaii, talking tax today with Tom. Hi, Tom. Hi, Jay. We have a kind of interesting and philosophical and economic discussion for you today. We're going to talk about the two horses, the parable of the two horses. That's right. But before we get into that, I just want you to summarize the article that appeared in Civil Beads this morning about what is it about? Banks in Hawaii. There was one particular bank that did Bank of America. You've probably heard about Han Fed. Yeah, it was swept up into Bank of America. So Bank of America bought it a long time ago. They had it for a few years. And then they sold it to the subsidiary of the electric company. It's now American Savings Bank. But before they did, according to a certain Hawaiian activists, they promised to make $150 million in federally guaranteed loans. According to the activists, they didn't do that. They did engage in discussions with the Department of Hawaiian Homeland. The Department of Hawaiian Homeland said to me a letter saying, okay, you fulfilled your commitment, period. And it was signed by, I think, the deputy director or the deputy chair of the Department of Hawaiian Homeland. Public official. Yeah. And not a grunt either. I mean, it's one of the top guys, right? This was in 2007. So why is this issue coming up again and again and again? Came up in 2012. It came up in 2019. Why does it keep coming up? And now in this year, all the county councils are getting involved, Governor E. Gays involved. And he says, hey, thank you, America. Come to Hawaii and negotiate a fair and final settlement. That's ridiculous. So what is it we gave him in 2007? I said it was the final settlement, didn't it? Yeah. And it was signed by the government. It was signed by the government. And but five years later, the person who then was the chair of the Department of Hawaiian Homeland lands said, oh, it was not valid because they needed a full vote of the board and they didn't get it. They knew the Hawaiian Homes Commission. What's the statement about why you should never rely on Hawaii government? Yeah. And my point is, look, if you don't want the world to think we're a bunch of lawless savages here, and I did use that word in the article, you ought to start making like when you give your word to somebody, you're going to follow it. Or when you don't like it, you accept it anyway because it is a decision made and executed. That's right. Well, I tell you the truth. It was an interesting article. It was different than a lot of your straight tax articles for sure. Why did you cover this and that article here today in Civil Bee? Well, it certainly had something to do with the behavior of our government and public finance. It was certainly about money. And it just kind of shows you, I think, some of the questionable things that our government is doing when they're not respected. It's an attitudinal thing. It's about the rule of law. It's about respecting decisions that were made. And inevitably, you have to make the comparison between the Bank of America story in your article and TMT, where the court system in our state, the legislative system, has created a certain result, decision, determination, order, you will, permit, if you will. And now people are denying it, even after litigating it for 10 or 12 years. It's an inevitable comparison, isn't it? Yeah. I mean, are we respecting the rule of law there as well? There's been a lot of arguments raised about, oh, well, the Mauna Kea Access Road is under the control of the Department of Hawaiian Homeland. So that means, according to one senator, that all the beneficiaries with the requisite flood quantum can go set in the road if they want to. Well, they can't. A road is still a road and blocking it is a crime. Right. It's our road belongs to all of us. The other thing that happened, I just have to throw this in, is that yesterday, paper reported that there were death threats against Senator Lorraine Inouye, who has supported the TMT and the opening of the road. Right. So it's quite remarkable that not only do we get a complete rejection of all the process that's going on for a decade or more, but now we get death threats over that. This is out of control. Thank you, Governor Ige. Yeah. I mean, Governor Ige isn't responsible for starting this mess, but he hasn't cleaned it up. Yeah. Okay, Tom, that's chapter one. Now, on to the parable of the two horses. All right. What in the world are you talking about? All right. In once upon a time, there were two horses that were sent to two different towns. Let's call them Harburg and Tarburg. And then the horses were supposed to pull a wagon to the other town and then back. Right. I mean, that's what horses normally do. But the people in Harburg treated their horse a little bit differently. And let me kind of tell you what happened. In Harburg, they were worried about the horse going the wrong way or walking on bird nests or things like that. So they put a lot of obstacles in the route. And it's not like there was a clear road or anything, but there was just kind of like a direction to go in. So they put obstacles and they put pitfalls. Pitfalls were you kind of, if you're not watching, you can kind of fall in and break a few legs and stuff. Yeah, the word is taken on another kind of generic meaning more recently, but it started out as a pit. A real pit. A pitfall. Yep. These are in Harburg, they were real pits. Sometimes you could see them, sometimes you couldn't. And sometimes they were in areas clearly marked as don't go here. And sometimes they weren't. Now, they were worried that the horse was eating too much. So they took away some of his food in Harburg. In Tarburg, they didn't really care about it that much. So they let the horse eat. In both Harburg and Tarburg, they wanted to reward the horse for good behavior. So they gave him carrots and apples. But in Harburg, they were worried that the carrots and apples cost too much. So they said, well, after a certain point, no more carrots, no more apples, even though the horse did all kinds of things. And finally, in Harburg, they were worried that there weren't sufficient number of people making a living off of the route from Harburg to Tarburg. So they put a few extra people in the horse's wagon. So the horse had to kind of pull them along as well. They didn't even know what they were doing. So that's what the horse had to do. So the question is, OK, which horse made it to the other city and back first? What do you think? The one who wasn't mistreated. Mistreated? Let's kind of see what we're talking about now. The horse is a business. So what do you think the obstacles are? All the obstacles that were imposed in their way. They want to make sure the horse is going in the right direction, right? Yes. So it's regulations. That's what I mean by obstacles. You put some notices, you put some... Marcus, some of them aren't good. You need to tell the horse and the driver to keep out of the swamp. Well, if you're asking whether regulation or make that over-regulation would help the horse get there sooner, it wouldn't. You want to have a minimum of regulation so that the horse can get there sooner. Or at least so the horse can figure out the more efficient way to get there. Yes. What do you think the pitfalls are? Well, that's not good because then you are deterred, you are distracted, you're falling into a pit will slow you down. Well, I mean it can slow you down or it can basically put you out of commission entirely. Break your leg, you're done. Break your leg, you're done. These are penalties. Penalties. Yes, so a lot of times businesses go on. They think they're doing the right thing. And then some agency or other says, well, no, you haven't been doing the right thing for the last 15 years and there's a price to be paid for it. Even though you've been in business. Even though you've been in business. And that then becomes a past tense. Yeah, right. Because they put them out of business. Yeah, if you fall too hard it's really difficult to continue and the only thing left to do is go to bankruptcy court. Carrots and the apples? Incentives. Sure. Yeah, so most economies have them, we do too. Sometimes in Hawaii, nay, I don't think we understand them. Oh, nay. Two points on that one. But the thing to watch out for there is that if you really want the incentives to drive certain behavior, what's the point of putting caps on it as long as you're getting a return after, if the behavior is being complied with? Yeah. If it's something where you can't afford the incentives, then don't get them. I know where you're going with this. It just occurred to me. Oh. You're going to a stat that was published very recently for the proposition that Hawaii was one of the most difficult states in the union to do business and that we over-regulated and that we under-incentivized and we, at least for all appearances, we didn't really care if the business has succeeded or not. Matter of fact, it looked like we were trying to put them out of business. And when we come back from this break, Tom, when we come back from this break, we're going to examine how all these things work together, how they work in Hawaii, why we're at the bottom of the list, and what we can do about it. It's going to be a six-hour show. We'll be right back after the short break. Hey, hello, everyone, and welcome to the Think Tech Hawaii studio. My name is Andrew Lanning. I'm the host of Security Matters Hawaii. We air here every Tuesday at 10 a.m. Hawaii time trying to bring you issues about security that you may not know, issues that can protect your family, protect yourself, protect our community, protect our companies, the folks we work with. Please join us and I hope you can maybe get a little different perspective on how to live a little safer. Aloha. Hi, guys. I'm your host, Lillian Cumick, from Lillian's Vegan World. I come to you live every second Friday from 3 p.m. And this is the show where I talk about the plant-based lifestyle and veganism. So we go through recipes, some upcoming events, information about health regarding your health, and just some ideas on how you can have a better lifestyle, eat healthier, and have fun at the same time. So do join me. I look forward to seeing you and aloha. Talking tax with Tom Yamashita. Tom, you know, we're talking during the break about, you know, trying to bring this parable down to reality, down to connect up. And one of the things that struck me is, you know, that Hawaii has a problem in allowing for new businesses, incentivizing new businesses, and sometimes often over-regulating them so they go out of business, and therefore, you know, our economy is affected. So this part of the show, we should talk about that. But the first question is, where did we get the culture that permits, that allows this kind of anti-business flavor? And I was thinking, oh, where did we get that from? Where does it come from? Does it come from the monarchy back when? Does it come from, gee, Asia as a, you know, cultural influence? Come from the mainland? Where does it come from? You know where it comes from? I think in the old days of the oligarchs and the Big Five and all that, people really didn't like this. They didn't like how business guys were ruining or ruling their lives. And, you know, although a lot of people got into business in the 50s and around statehood, I think that has perpetuated this animosity toward business. What do you think? Well, I mean, I think there's certainly a way of thinking about business as, oh, they're so big, they're so powerful. You know, they can respond to anything that we put on them. And that's why in the parable, it goes, one of the features is, will they stop feeding the business? Now, what does, will they stop feeding the horse? What does a business need to survive? Needs capital and needs people. Capital, they take away through tax. People, they just take away through squeezing and squeezing and squeezing them. We have people leaving the state in droves. What do you think they're going to get their work? And nobody seems to be doing anything about it. You know, it's almost as if they don't care. And I say that, I mean the government. That's hopefully a trend that we can help reverse. You know, if we kind of bring more awareness to this. You know, just a few years ago, some lawmakers were in denial that we had a population exodus. They thought that, you know, we're just gaining population by leaps and bounds. And I said, oh, that's not what the census tells us. And then this was a pretty powerful senator I was talking to. Yeah, and the ones who do best in school are the ones who leave. And then the part of the parable where you put extra people in the wagon to add to the load. That's an allegory for additional requirements that are imposed on employers in general. Minimum way. Health care, mandated benefits, mandated nap breaks. And, you know, all kinds of requirements, unions impose all kinds of requirements. It gets impossible to start a business and continue a business having to comply with all these requirements. It ain't worth it, you know. Yeah, it's, you know, I run the tax funding. We only have two employees, myself and one other guy. And it's still a chore. I want to, you know, offer competitive salaries and benefits if I could, but it's just too much hassle. Like, for example, I wanted to, before I got there, the foundation offered a defined contribution plan. You know, pension plan. Well, a legal review of the pension plan, which is required every so many years, you know, costs over a thousand bucks. And I don't have that in my budget. I mean, I'm a small organization. I can't afford to pop for legal fees in that amount, you know, every couple of years. So you shut it down? I don't need other plans. That's perfectly reasonable, because you're a small company. And what that says is the government is putting more weight, you know, more weight on smaller companies than bigger ones. Yeah, the bigger ones at least have economies of scale. Like, if I were a Walmart, I would have, you know, a department taking care of the pension plan. On the main ones somewhere. Yeah, a department taking care of human resources. And I could concentrate more on, you know, what I do better as a business. Oh, so, you know, I said before, you know, after statehood, there were a lot of mom and pop businesses being created here. My law firm, we were creating, if it doesn't, new corporations every day. That changed over time. People didn't want to do it. And I suggest the answer is in this discussion. The answer is they were, they could not deal with all of these obligations, requirements and regulations. And the word got out that you couldn't make it if you put yourself up against those requirements. And so you didn't do it. And people stopped making these mom and pop businesses. Yeah, I mean, for myself, I have a small law firm, I have no intention of hiring any employees. Because there's just too much stuff that I have to deal with once you get one. Yeah, yeah. And you'd probably have to hire somebody to just comply with all the regulations and requirements. And that person would cost you a ton of money. There's no way it could be efficient. No way that... Yeah, even with the tax foundation, I have just two employees. And my office manager, a substantial part of his time is dedicated to complying with all this stuff. Yeah. Yeah, and what's worse is that if you get into some kind of dispute, and you have to go before an administrative law judge in the Department of Commerce, they will always rule in favor of the employee anyway. And the entrepreneur who put his life and limb and takes all these risks to establish, you know, the business and maintain the business. He's the one that risks, usually. He falls into a pit. He falls into the pit, a pitfall. And there's nothing that she can do about it. Back wages, back penalties. Yeah, and so he puts them out of business. And, you know, we had no idea how many businesses, A, were not created because they saw these problems before they, you know, started the business. And it discouraged them from starting the business. Or B, that you referred to, is they were in the business and they ran into the pitfalls and the additional expenses and things that really is hard to justify. Really, if you look at it, and they couldn't maintain the business, so they stopped the business. You know, if we did... I'd love to see some kind of numerical analysis, some metrics on this, to show, A, how many businesses could have started but didn't. How many businesses could have continued but stopped? Just look at the restaurant industry. I mean, there are new ones and old ones all the time. Yeah, and a friend of mine in the real estate industry told me that right now, today, you can talk about good economy and all this, but right now, today, there are so many restaurants that are failing. It's quite incredible how many restaurants are just about going out of business that are not worth the power in terms of value on a resale. So, you know, we're in a place where this is all coming to roost right now. Anyway, one with your analysis. No, I mean, I was where you're at. So, we have to do something, you know, we need to keep this horse alive. We need to keep the horse going. I mean, that's how, if you think about it, that's how government survives because all of the tax laws, or most of them, depend on economic activity, the tax economic activity. There's no economic activity. There's no revenue for the government. That's where we are. That's where we are. So, we've got to get that horse moving. We can't keep weighing them down. We can't, you know, keep putting extra loads on them. We can't keep starving them. How are you going to take care of your engine? I remember during the, I think it was the Katana administration. Earl Ansai was in that administration and the question was put to him, how many employees does the state have? And he couldn't answer. And then they asked it and asked it over and over again and nobody could answer. Nobody knew how many employees are in the state payroll. And then you realize that the state payroll is pretty attractive, you know. You get, you know, very good salaries increasing all the time. In this kind of imaginary thing about we have to keep up with private industry and we have a kind of resentment about private industry because they seem to be paying more. So we'll pay ourselves more. Raises, raises upon raises and then benefits upon benefits. And a retirement upon retirement, you know. One of the reasons there's 13 billion behind is that, is that the state retirement system has to pay for lifelong medical. That's expensive business. It's expensive. We know how expensive it is if we're in the private sector. The state is paying the freight on that. That's why no private sector business offers that kind of benefit. Can't. The state can, but it's with our nickel. But here's the other thing I want to throw at you and see what you think. You know, as a theoretical matter, as a sort of construct, is that if you have more people in the state regulating us, then more people are going to be out there trying to justify their jobs and therefore thinking of regulations and the execution of regulations and the enforcement of regulations justify their jobs. So they're going to be much more busy, aggressive if you will, implementing and enforcing regulations than if there were fewer people in the state. Therefore, the greater number of people involved in doing regulations, the more regulation we have. Isn't it true? That sounds right, and what that brings to mind is, I think, some pearls of wisdom from Steve Jobs, right, when he had a meeting with his employees to discuss new product lines. He was at a whiteboard and he took down these good ideas. Ten good ideas. Revolutionary product. He said, we only have resources for three. Very good. We only have resources enough for three. Which three are we going to do? Okay, apply that now. In state government, we can't say no to any of the ten, because each has their own constituency. Right, so you have to keep all your constituency happy. All your constituency is happy. Therefore, you take all of them. Or worse yet, you take all of them and you get the wrong order. You get the wrong priority. You give more money to the one that should get less money, but you're not applying any judgment. You're reacting politically without applying, you know. Yeah, that's why we have all these deferred maintenance problems, because we're focusing too much on here and now and less on, oh, we've done this in the past and we have to maintain it. Right, we have to maintain it. We never give anything up, which is an extension of what you said before. We have to accept all the initiatives of all the constituencies, and once we accept that particular initiative, we can't give it up. We have to keep on paying the freight on that. Yeah, forever and ever and ever. Forever and ever and ever, but we don't get enough money to cover the freight when we keep adding, because we're always adding new initiatives and not getting rid of old ones. And then, of course, something like climate change comes along. Climate change requires a ton of money, and we haven't spent it. We have not. We have not allocated it. We have not even figured out how much it is. We have not even figured out what we need to do. Where's the action? And so what's happening is we're in the headlights over climate change. We haven't done anything. We have no plan to do anything. Everybody gets up and says, yes, we have a problem. Well, thank you. How about doing something? It's creeping up the shore. The weather is going to get worse. Are we really resilient toward that weather? I doubt it. And one of these days, we're going to have a renewable energy mandate that no other state has. That's not the same thing. Climate change, certainly you want to cooperate in the global effort to reduce carbon in the atmosphere. But also, you have to protect yourself. You have to protect yourself against the extreme weather, against the rise of sea level. And you have to be resilient and recover from what happens. Yeah, just like what Japan is doing now. Exactly. The typhoon number 19 just kind of devastated the area, put a full of 13 feet of water on the ground. What do you do? Well, you'll see how a society can come out of that in shining fashion. Will ours do the same? I don't know. A stitch in time, Tom. We haven't taken a stitch in time. And all this goes to public policy. It all goes to planning. It all goes to these cultural, I mean business economic culture points that we've been talking about. And it's really time for a leader to step up and recognize this problem. A cultural economic problem. And start closing down some initiatives. And start reordering the priorities and the proportion of money that goes to the initiatives. And start giving a break to small businesses so that they can survive. The one thing we didn't connect up is that if you have better opportunities for small businesses, you have fewer young people, fewer young entrepreneurial people leaving town. So those two things work in conjunction with each other. If you give them a break, they'll stay around. They'll form small businesses. Economy will be better. Tax collections will be better. There'll be better innovation as well. And more innovation, yeah. So now I understand the parable. I think it's one of us. That's good. Thank you, Tom. Tom Yamachika, Tax Foundation of Hawaii. Thanks for having me on the show.