 I hope you take my puppy seriously by the way, that's her name is Emily, she jumps up and down. She wants to get your attention, ask you to join our fun drive and make a contribution on thinktecawaii.com. Why don't you do that and help us out? We do have bills you know, meanwhile today is Wednesday afternoon, we're here to talk tax with Tom, that's Tom Yamachika, very important we have this conversation, especially during the legislative session where no man's life or property, no woman's life or property is safe. And we're talking about other kinds of bills actually. Well, let's talk about what's happening here as we go into the ninth inning, it's almost over, I don't know if that means a gasp of you know, relief or a gasp of success. What's the relief and what's the successes, tell us now. So here we're at the point where we don't know what's going to happen because the negotiations that happened from this point on are generally back room, the committees don't necessarily meet until they have a conference draft ready and they meet to announce the vote in public, but by that point it's normally a done deal. So lots of stuff is happening that we don't know about, and this is the part of the session which I think is the scariest stuff. You know, one thing that strikes me when you say that, Tom, is we know a lot of bills sail into conference and it's a black box, we don't know what they're going to do, we don't know what they do until after the fact they fill in blanks and the like and it's actually troubling and we never found a way to reform on this, we really should reform this, but the legislature is more transparent. We need to have government that we can be confident about, that we can like, that's not likeable. But what strikes me is that, you know, there may be a difference between bills that affect one part of our lives and bills that affect other parts of our lives. For example, as some bills I expect they wouldn't go to conference because they're too black and white and all the talking and arguing is already done and there's not that much to be resolved in conference and we don't want to have a black box about those bills, they're too black and white, so we sail them through and there is more transparency. Other bills, well, you know, we don't want to talk about it in public. I say we, I mean the legislature and we want to do it in private, we want to fill in blanks so nobody knows exactly what the what the score is and so that's the way we do legislation in two separate styles really. My question to you is, is it true? My impression is that we have more bills in tax that go into the black box than other types of bills. Yeah, I mean that's that's kind of in my impression over the last few years that a lot more of these tax bills are being blanked out, you know, when you like like the amount of credit or the tax rate or credit rate or things like that, they're being blanked out, they're setting them to conference with blanks and basically getting the conference committee to fill in the blanks, you know, my, you know, what I wonder about is when the legislature is voting on these bills to send them to conference, they're voting, they're voting on blank bills. Do they realize they're doing that? I don't make a big difference what's in the blank. Huge substantive difference. It could be a great bill or a terrible bill depending on what's in the blank. Yeah, one of them, House Bill 1190, I call it the blankety blank bill. Perfect. It's to adjust income tax rate and as originally introduced it was supposed to like lop off the income tax for people who are making below the poverty line and then, you know, have the measure revenue initial so the so the brackets get kind of, you know, smushed up through higher earning taxpayers because it really doesn't make any sense for us to start taxing people who are making $3,000 a year. I don't have the likely to pay it anyway. That's another thing. But during the legislative process, each of the amounts and each of the tax rates got replaced with a blank. It was now, you know, for the tax bracket here that your tax is blank plus blank percent of the excess. Blank, blank percent of the excess. You know, eight or nine brackets like that. Blankety blank. Blankety blankety blank. That's really awful. And I mean, here, you know, before we started the show, you and I were talking about in Congress and the tax relief act of Reform Act of 2017, where there were no hearings zero hearings, 2,000 pages of legislation affecting our lives. No hearings. We never heard what the argument was for or against what the numbers should be, what the aspiration of the legislative body was. They just did it behind our behind our backs. I have to say we went along with it. So my question is in the state legislature on this blankety blank kind of thing, weren't there hearings? Or I mean, we would say, were there hearings? Yes. Were legislators and witnesses and experts in the tax office and economists and business people all got up to say, well, if the rate should be this and the cutoff should be that and so forth. And they advocated for numbers so that the public would know what's going to be in that bill. Yeah. Well, in this case, they didn't. They just at least support the bill. Well, and I'm thinking support what? The bill's full of blanks. How can you support the bill if it's full of blanks? When you're talking about tax bills, in principle, it's not good enough because it's all about numbers. Tax is all about numbers. So merely to support the bill is not good legislation and it's not fulfilling their duty, in my opinion, as sworn representatives. Well, I mean, at least they ought to give us something to debate. You know, there's really no, I guess, and maybe this is the justification for it. In conference committee, they can amend all the numbers anyway. Right. So if there were if there were some numbers in previous drafts and, and you know, at least people can argue for or against the adequacy or sufficiency of those numbers, then, you know, if they want to, they can change them later on down the line anyhow. But at least when you have numbers in the draft, it allows for debate. You know, if there's nothing there, what do you debate? There were never numbers in the black and the blank though. There were numbers in the bill as originally introduced. Okay. But after went through a couple of committee hearings, blank blank blank. So was there testimony about how the blank should be filled in? There was testimony, but just basically supporting the concept or not supporting it. But not about the numbers. Not about the numbers. Effectively, it was an abdication even by the people who were advocating for or against the bill as to how to fill in those numbers. And it strikes me that how can the legislature do a decent job if it doesn't have a record of the information, the data necessary to achieve those numbers, or better yet, if they did have the data, I don't know if they did, I kind of doubt it, then how does that, why do we have to wait till the conference committee for them to actually digest, interpret, and come to a conclusion about that? Why can't they discuss this in the committee hearings? Why do we have to wait and find out by surprise, by ambush in a way? That's, I guess, a strategic decision. You want to ambush the taxpayer? That's how you do it. That's how you do it. Not really acceptable in my opinion. Anyway, okay, what else you got? I'm sure you got, actually, Tom gave me his current matrix, and it's like six pages, five pages long, and it's got all these bills that are still alive. Let me ask you, just to preface this, why do we have all these tax bills, which are potentially threatening to us, they're still alive in the waning days of the legislative session. Couldn't they get killed somewhere? I mean, if they weren't appropriate, why are there so many of them? Well, I think the revealing philosophy is to keep options on the table. I think we talked last time about Donovan's Dozen, where the chair of the Ways and Means Committee had a number of revenue-raising bills on his whiteboard, and the, I guess, the idea was that if a certain amount of revenue had to be raised, then they would take this bill and say, okay, we've got to pass it. Then it's the governor. So maybe that's kind of the philosophy that we keep a whole bunch of stuff alive, and after the budget requests come in and those get debated and they figure out how much dollars they're going to need, that's when they decide what lives or dies. Are any of these bills, you think, targets for, what is it called, got and replaced, or bait and switch, whatever you want to put that? Are these potential containers for that sort of thing? Every one of them is probably a potential container for a gotten replaced. Another ambush? Yeah, I mean, a number of these bills have general titles relating to taxation. So you don't like a GE bill and you want to put in a hotel room tax bill, pass one, put in the other one. Now, the House and the Senate rules don't permit that, except, and it's always an except, when leadership agree. So you need the approval of the Speaker or the Senate President. Why does that give me so little comfort? I don't know. You just don't trust government, maybe, I don't know. So, you know, the interesting thing is we can sit here, you and me, we can sit here, we can discuss the tax policy around these bills. We won't have time for all of them, but a few of them anyway. And we can, you know, get a handle on whether we like them or don't like them, whether you think they'd be beneficial or not for the state. And then, at the last minute, they can be all gotten replaced or bait and switched, whatever, that can be changed completely. And our discussion becomes completely moot, because that's not what the bill was about when we discussed it. That's right. It happens. It happens. It's happened before. The suit by Common Cause and League of Women Voters is still alive. I know the trial judge ruled against the plaintiffs. But there's still the possibility of appeal. And I think the plaintiffs were planning to appeal anyway, if it had gone against them. And that suit challenges the gotten replaced concept. And the trial judge, of course, just said, well, you know, these guys were following the rules, and that's a legislative function, so, you know, suit dismissed. But that's probably the end product, isn't it? If the legislature was following its own rules, well, it's entitled to do that. Is that the way the Supreme Court would go? Maybe. The plaintiffs in the suit were trying to say, well, there are constitutional requirements. Okay. Federal constitutional. Hours too, because we have what we call the three-reading requirement. Bill has to be read throughout three times in each house before passage. And that is supposedly, according to the 1950 proceedings of the Constitutional Convention at the time, it was 1950 amendment, they wanted to make sure that these bills were adequately debated and that kind of stuff. But how can you have a debate about something that's totally extraneous to what the enacted bill is? You know, these rules in the legislature, they cannot yield public confidence. Nobody can be confident of the result when you have rules that allow this sort of thing. And I really wonder, I can't remember that it ever happened. I really wonder if there's any campaigner, anybody running for public office who would say, wait a minute, if you vote for me, I am going to make a big campaign in the legislature to clear up these bills that are anti-transparency bills. I mean, these rules that are anti-transparency bills. I never heard that said, but that would work for me and I would vote for somebody who came up with that, because I really think the legislature has to be more transparent, especially on bills that have such a profound effect on our lives like that. When I get to this point, though, I usually get a headache. I get a splitting two-sided headache. And what I need to do, Tom, at this point is to take a break, try to relax a little bit, and then we'll come back in one minute. All right. Aloha and welcome to At the Crossroads. I'm your host, Pisha King. You can catch me every Wednesday, alive at five. I'll see you there. Aloha. This is Winston Welch. I am your host of Out and About, where every other week, Mondays at 3, 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. 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 3 o'clock on Monday afternoon. Aloha. Hey, here we are. We're back from our break. We're talking tax with Tommy Alachica, president of the Hawaii Tax Foundation. I feel a little better now. A little rest in the break, though. But let's... Yeah, that flask also helps a little bit more, doesn't it? No, I'm not telling you what's in the flask. You're getting very good. So tell us about some bills that have actually gotten, that have been successful, that have been passed by both houses already, even before the end of the session, which ends in the first week of May, and which have been signed or going to be signed, because there's no issue about... Can you talk about that? There are a couple of tax bills that have already become law. One of them is Act 3, Senate Bill 1361, that raises our estate tax for taxable estates over $10 million, and basically adopts a marginal rate of 20%, which I believe is the highest in the nation, which had with Washington state. That's already law. This means that if you are a Hawaii resident, I don't know about a visitor, but a resident, and you're worth more than $10 million, what everything above the $10 million would be subject to a 20% tax on your debt? Well, it started about $15 million, I think, because there's like $5 million or so, which is the unified credit, that people are allowed to pass without taxes. And then after that, the taxable estate starts. So, does the $10 million plus the unified credit amount gives you... I mean, that's when you get into... But it's a flat rate, though. No, it's graduated. So, at lower taxable estates, or less valuable taxable estates, I think the tax, for example, I think it was 7.5%, and then it goes up... All the way up to 20. Yeah, it's progressive like the income tax. I thought the... Tell me if I'm right about that. I thought that the state inheritance taxes in state law, state tax laws going out these days, and that there are not that many states that have it these days, mainly because the Fed has been so soft on a state tax in the past 10 or 15 years. Well, it used to be that the federal state tax gave a credit for state death taxes, and many states said, well, we'll impose a tax of the same amount of the credit, so tax payers didn't have to pay any more, but the state would get some money, and the feds would not. Kellgate. Right? They would all follow the federal tax. Right. But now there is no federal tax for a lot of people, but maybe this is the state's way of stepping in? That's one possibility, certainly. But the federal state tax doesn't work the same way anymore. Yeah, okay. What are the tax policy considerations on this? I know it's going to be law, or it is law, but one thing comes to mind is you drive away the very rich people. Do we care? Was that considered? Or we not care about that? I think people consider it and don't care. We've been trying to tell folks in the legislature that people don't just go to the ballot box, they vote with their seats, and boy has been losing people, and this is, I think, one reason why. Having a business-unfriendly reputation, high taxes, if you don't have something to keep people here, they're going to jump on a plane. What about people we've known and heard of? What about Steve Case? I think he lives here, doesn't he? And Pierre Omidyard, he lives here, and Zuckerberg in Kauai. They're worth more than $10 million. Is this going to have an effect on them? Well, I think it will have an effect on them. Are there ways that they can avoid that effect? Will they take some action to ameliorate the effect of this new law? When I was in private practice, that's a lot of what we did. We consulted with people who had potential tax problems and find ways within the law to minimize the burden. People can afford to have these conversations with their tax professionals, and I think those who watch your show could benefit from that as well. You can use trust so to effectively skirt this tax, I suppose. Sometimes you can, and sometimes you can't. Okay, now maybe that's a subject for another day. What other bills are FETA complete? One good thing is that the proposed general exercise tax hike for education, for the teachers, as well as the university folks, that appears to be very dead. There was some last-minute maneuvering so that it would pass one of the lateral deadlines, but still the House didn't hear it, and it's unlikely to come up in conference. And what about the, and this isn't directly taxed, but it is a kind of tax on a small business, the minimum wage bill, where is that sitting? There is a version that's still alive that's going to conference as well. Now, one thing I caught that was very interesting, really killing, I don't know if it's the final form of the bill or how many final forms of the bill there are, but it was called for one number for employees of the business community, and it called for another number, a higher number for state employees. So the minimum wage for state employees would be $2 higher than employees not working for the day, or government on that day. And I really was astounded by that, why there should be this disparity between government and non-government. Yeah, we don't consider that a tax bill. So, okay, let's leave it there. People can read up on it and see. Yeah, there are other groups like the Hawaii Employers Council that follows bills like that. Yeah, okay. So what else is likely to become law or likely to have failed? Well, we're going to have a lot of activity in transient accommodations tax. The Airbnb bill is back. It's again being hotly debated. There are a couple of competing versions of it. Some would make the registration to collect tax on behalf of the individual host mandatory. Some would allow voluntary registration like the bill was originally introduced a few years ago. So that's still kicking around. There was a movement at one point to allow the counties to surcharge the TAT, but that no longer appears alive. Although who knows what may come up in conference. There was a bill that was approved last year to bring what they called resort fees under the transient accommodations tax. It was vetoed last year because the resort fee was basically anything that a hotel charged tourist. So this year they kind of went back and said, okay, we'll impose the TAT on mandatory resort fees, which means if you are staying the night and you can't get out of this fee, then it's essentially part of your room charge for the night. And that's the current enforcement position. That's what the Department of Taxation said anyway. It makes a lot of sense. So that's on its way to the governor's desk, likely to be signed. Two things come out of that for me. One is if I were a self-respecting hotel, I would take everything that might be considered mandatory and make it not mandatory. The other question I want to ask you is, you know, where does a leadership on tax things come from? I mean, I would assume just knee-jerk that the governor would be driving tax policy because the governor is interested or should be interested in the economy in general. And the way the economy works, the way the money flow and the way income to people and all that life, quality of life, quality of economic life in Hawaii. And therefore that would be on his desk somehow, wouldn't it? And my question is that- Well, we haven't seen any of that. Am I right about that? Does he do that? Is he down there? Is D-bed down there? You go to these hearings. You see who shows up. Well, the departments are down there, definitely. The governor's chief of staff is there often. But I've never seen the governor there. Do they have a tax policy plan about where they want taxes to go? Where they want- How they want taxes to affect the economy? At one point there was- I mean, the governor had a senior policy advisor who dealt with that. But you needed her to run budget and finance. So she isn't there anymore. She's doing other stuff. So I don't know who or what is filling that position in the governor's office. Well, it'd be interesting because you, as the president of the Tax Foundation of Hawaii, would love to meet with that person if there was such a person. Because you would like to express your philosophy about these things, right? And find out what was on the griddle. I wish you could participate in some way in how that tax policy is going. Wouldn't you want to do that? Yeah, I'd want to do that. I don't know if I'd be given the chance. Okay, well, maybe someday. Maybe someday, Tom. They're busy. We'll see. Everybody's always too busy. But they're not too busy to raise our taxes, are they? That's right. So, okay, so here we are and we're almost done. And I just wonder how you, whether it's early or late for you to say how this legislature has been doing, how it will have been doing in taxes in 2019? Well, at this point, there are really too many blanks. You know, I have no idea what they're putting through. I will have a better idea once the final decking deadline comes up. But as of right now, there are too many measures and too many blanks within the measures to give anybody a realistic idea of. How about fiscally? Can you say, or is it too early or late, how what you're doing in terms of fiscal management? Fiscally, they're trying new stuff this year. I think I've explained that to you before. Instead of having one legislative committee look at the whole budget, at least on the House side, they've tried to basically come up with a baseline number past that and that's, I believe, House Bill 2. And then have different subject matter committees look at their own departments under their purview and scrutinize those much more harshly. What I've heard is that a couple of committees did fine stuff. Takashi Ono's Interstate Commerce Committee found some stuff in DCCA, some idle funds, and I believe the House Labor Committee found some stuff in the Department of Labor as well. So what's going to become of that, I don't know, but at least there's been a move to have budget scrutiny bettered over several lawmakers instead of just a few. What one last thing comes to mind. We've heard a lot of news about how people's tax bills have changed beyond expectations in view of the first year of reporting under the Federal Tax Reform Act 2017. And some of them have gotten less of a refund than they thought, meaning some of them have paid more tax than they thought they were going to pay, and that they had false expectations. Is that like false news? Yes it is. False expectations of the benefits they were going to have under the Tax Reform Act of 2017. I'm not sure of the benefits they were expecting, but the National Tax Foundation has done some studies that said that people by and large did get a benefit. Okay, my question though is does anything that has happened with respect to the Tax Reform Act of 2017 engage, interact, synergize with what is happening in the legislature? Is the legislature taking steps to deal with either push back or somehow accommodate on the changes in the federal law? And if not this year, is that going to be appropriate next year? Well, there were just a couple of minor technical corrections. They are planning to adopt for state purposes the Federal Opportunity Zones. But what is that exactly? That's where you get to, you know, if you invest in a certain designated area you get either capital gains deferral or capital gains forgiveness depending on how long you keep the investment in the designated region. That's mostly for investors though and businesses rather than the ordinary person. Right. Anything else? Well we're always around so if you're adoring public as tax questions just send them our way and we'll be happy to try to answer. What's your website then? TfHavae.org. Tf for Tax Foundation. Havae is spelled out and .org just like think tech. And we have a tax watch doggy too. Good, that's, I'm Yamachika, President of the Hawaii Tax Foundation. He earns us every couple of weeks where we try to keep our fingers on the pulse of taxes in the state of Hawaii. Thank you so much. Thanks for having me on this show.