 ThinkTech. I'm Jay Fidel, and we're having a 10 o'clock show as we do on Thursdays with Tom Yamachika of the Tax Foundation of Hawaii. Today, we're going to talk about limiting tax penalties under the Eighth Amendment. I bet you never heard exactly or you don't remember exactly what the Eighth Amendment does. Welcome to the show, Tom. Thank you, Jay. Good to be back. Today, we're going to be talking about the Eighth Amendment. I mean, when you think about the Eighth Amendment, you think about people on death row and whether they're going to be given the electric chair or toxic injection or some other means of torture and or death. But the Eighth Amendment also protects other things like no excessive bail and more to our topic, no excessive fine. Now, the problem that this amendment has hopefully addressing has come to light in a few cases that have been happening across the country. One of them involves, first of all, the basic question of whether this stuff applies to the states at all. There was a case in Indiana where a person was caught and convicted for dealing drugs. But as part of that, the cop seized his SUV, valued at $40,000 because it was being used in the offense. And the Indiana basically said, okay, this is ours now. And the Indiana lower courts didn't buy that. They said, well, that's kind of excessive for just one conviction, the maximum penalty for which was $10,000. You're talking about a 40 grand SUV there. It wasn't an SUV. It was a land rope. It was a land rope. $40,000 that he bought with his own money, that he got from insurance policy. And the Indiana Supreme Court basically says, come on, guys, the amendment doesn't apply to the states. It applies to the federal government. It doesn't apply to us. So go ahead and take your land over. And that's when the Supreme Court got in an opinion by the late, great Justice Ruth Bader Ginsburg. He said, which way she would have gone to without knowing more. And she says, the eighth amendment does so apply to the state. And furthermore, it really doesn't matter whether you have a criminal proceeding or you have something called the civil forfeiture. The important part of the equation is that the government is exacting punishment. And the eighth amendment limits the power of government. And so you got to look at, all right, what is this person whose property is being taken, done to deserve the forfeiture it is property. And torture or other way by which your property is taken from you. If that's excessive in relation to the offense, crime, or whatever it is that is triggering the taking of this property, then you got a problem or the government has a problem because it has transgressed the limitations of the amendment. Now, this kind of has raised a couple of important issues. This, by the way, was a case that happened in Indiana just last year. So just for people who were taking notes, Tom, what's the name of the case going to give us a name? It's called TIMBS versus India. Okay, thank you. Okay. I was decided last year Justice Ginsburg and people are just trying to make sense of it now. Okay. There's a case in the Ninth Circuit, which is the Court of the Federal Court of Appeals that Hawaii, among other places, reports to. And that case involved the city of L.A. and its parking fund. Now, the issue there was you had the L.A. County municipal ordinances that provide for parking fines. And what that says is you can park in a meter place, but if you go over the meter and you get caught, you get slapped with a $62 plastic. Okay. And if you don't pay it in 21 days, you get a late fee of another $62. So a plaintiff there challenged that as being an excessive fine under the amendment. And so what if the Ninth Circuit and the Ninth Circuit said, well, we don't have any problem with the $62 initial fine. But really, nobody's spoken on the late fee. You know, the city of L.A. didn't advance any justification whatsoever as to why a $62 or late fee is reasonable. And so there really isn't a record for us to judge this. So we're going to send it back to the District Court in which they did. But so we have the Eighth Amendment's excessive fines clause now being applied to parking fines that are imposed not by the federal government, but by municipality. Okay. Now, how do you then apply that to something like we have in our state here? We have first of all, we have our GE tax, which we all know and love. It provides for penalties. And, you know, back in the mid-2000s, we thought we would, you know, we had a new sheriff in town and we thought, ah, we're going to beef up these penalties. We're going to make them substantial. This was in 2009. And we provided that several of the penalties applicable to the tax code were going to stack. Unlike the federal system where they don't stack, ours stack. So if, for example, you don't file a GE return, you can get written up for failure to file a return, which is a 25 percent penalty for negligence, which is another 25 percent, and for substantial understatement of your tax liability, which is another 20 percent, total of 70. I have seen in my law practice and, you know, talking with other practitioners, I have seen people get written up for 70 percent penalties. And that was just the start. The following year, and I think we talked about this on the show before, the Legislature enacted and the governor signed the General Excise Tax Protection Act, one of which had two very harsh provisions, one of which was if you file your tax return, your annual tax return, more than a yearly, you lose the benefit of any exemptions or reduced rate or deduction. So if you're a wholesaler, for example, you normally pay tax at a half percent. But if you get caught in the teeth of this provision, you don't file your tax return within a year after it's due, you wind up paying four and a half percent, which is 9x. Okay. And I have a case where this penalty has been asserted against the taxpayer who dutifully filed their periodic GE returns on time, the G45s, but forgot to file the G49, the annual return. So payments were made, the state got its tax, the taxpayer was on the radar, but they're still in the teeth of this penalty. So they didn't file the summary return at the end of the year, which would have reported exactly what was reported earlier. And for that transgression, the tax increased from half a percent to four and a half percent, 9x. And that's extraordinary, extraordinary time. And that's before the penalties were applied. Yeah. And the penalties would have been on the 9x. The penalty on the 9x and interest. So the penalty on interest on the 9x had interest of 8%. So part of that is punitive. Oh, unquestionably punitive. But the other part of it, I don't know how recently that assessment was made, but part of it has to be that the state is in desperate shape financially. The state is trying to raise money. So somebody said to somebody else, you know, you've got to be as aggressive as you can possibly be with these gross excise tax assessments. We need the money. And at the end of the day, that's a political issue. Right. And it does even more because the other part of the General Excise Tax Protection Act is personal liability. So if you work for a corporation but have some say over where the corporation's dollars get dispersed and GE tax is unpaid or is owing, then they can go after your house. Personally. Personally? That really sounds like, you know, an extraordinary, what's the word in the Eighth Amendment? It's excessive. Excessive fine. Or unusual. Unusual is the word that comes to mind. It's excessive, but it's also unusual that, you know, you're operating as a corporation or an LLC. Supposed to have limited liability. This is clearly the liability of the company. Now they're coming after you individually because they say so. And that troubles me right there. Yeah. And actually what you say kind of brings up another very important point. And that is, what happens if you don't have a person? Would you have an entity like a corporation being the taxpayer? Okay. Do the same restrictions apply? Well, Tins versus Indiana didn't answer that question because it obviously was an individual. Okay. But a case in Colorado that came out earlier this year said, oh no, the Eighth Amendment is a restriction on governmental power. It doesn't really matter who the victim is. Well, it's a restriction. Governmental power so corporations can get protected by this too. That's just said, the Colorado Supreme Court. So I mean, is that something we should question? No, I think it's a very good decision. I think it's very much in line with the philosophy of the Eighth Amendment and of the Bill of Rights in general, which was to limit the power of government. So I think corporations, partnerships, S corporations, LLCs, they can all benefit from this analysis. And if you have the full weight of state government bearing down upon you through the tax department, this is maybe a way you can fight that. Yeah. And don't forget that the gross exercise tax is completely regressive. I mean, from a societal point of view, you're putting an inordinate burden on the little guy. So then when you make it tougher still with excessive fines and penalties, those are imposed on the little guy. That's very, that's very troubling. But what I get out of the conversation so far is that for a long time since the Eighth Amendment was written, there hasn't been a lot of litigation or pronouncement by the Supreme Court. This Indiana case is important because now it's on the radar. The Eighth Amendment is on the radar. Number two, I think it shows that it wasn't only Indiana, there are a lot of states that forfeited things far in value, far in excess of the actual offense or the fruits of the offense. And so I think it kind of was running away with itself all over the country. In many states, we had forfeiture statutes that were really inordinate. And then what I get also is that if this applied to Indiana or to California, then it applies and a lot of it applies all around the country. The legacy of Ruth Bader Ginsburg on this issue is pretty important. And it means we have to take note of the Eighth Amendment and we have to straighten up because local governments have been too hard on people often because they need the money, like in Hawaii. And the last point I get out of the discussion so far is that this happens in Hawaii, too. We have excessive fines, penalties, and stacking. And we should take note of that. Often the taxpayer has no resources to fight with the tax office and he either has to pay for it or settle it, but he's not going to go to court on a U.S. constitutional issue. Is there a similar provision in the state constitution, Tom? I guess there is, but it's pretty much the same language, but it really hasn't been spoken to by our Supreme Court yet. But along that lines, Jay, I wanted to follow up on one of the points you said. And Ruth Bader Ginsburg was, I think, prophetic because in the Tim's opinion, you know, here's what she said. Even absence of political motive, fines may be employed in a measure out of accord with the penal goals of distribution and deterrence, or fines or a source of revenue, while other forms of punishment cost a statement. Don't you think that was a very wise thing to say? Yes. And I think it's very much in line with what happened in 2010 when state government was reeling from what then was the 2008 recession and they wanted to shore up their coffers in a manner that wasn't offensive to the general population. So they thought, ah, we're going to go after the bad guys. We're going to go after the scoffload. We're going to make life really tough on them. So this is what they came up with. And it was like one draconian thing after another. Well, you can say draconian on that, but let me offer a thought. So let's say that there were tons of scoffloads in LA. Nobody was paying parking tickets. Nobody. They stick them in the glove compartment by the dozens and never get around to it. And the state, the city, LA didn't have the resources to go chase all those $62 parking tickets. It was not an economic experience for them to try to chase. So how in the world do you make an efficient model of collection? Well, you discourage people from putting them in the glove compartment and you make it clear to them that there's something more here. And unless they pay, they're going to suffer. And, you know, there's a certain, you know, I think this is all guided by what does the average person think is fair and unfair, excessive or unusual, and so forth. And, you know, if I'm an ordinary person and I see all these people with full glove compartments, I say, you know, we got to find a way to have them pay. It's unfair. You know, if the ticket was wrong, let them argue with it, but if the ticket was right, let them pay it. And if they don't pay it, we got to find a way to make them pay it. It's not unreasonable, is it? Of course not. And I think that's probably, you know, part of what motivated the lawmakers there and here to pass this kind of legislation. I think, you know, in 2010, there was a lot of discussion of, well, geez, there are too many, you know, corporations and businesses that are really coming their nose at the general excise tax and not, and basically disobeying the requirements of the law. So we got to make them, you know, we have to impress upon the public that we're serious about this stuff. And, you know, we can do this by making some examples of people and really beat them up. Yeah, but, you know, at the end of the day, maybe the parking should be free. At the end of the day, you know, find other ways to raise money. I mean, we're in a crisis of social compact where people don't like the government. They really don't. And they live their whole lives not caring about the government, not wanting to help the government, not being sympathetic to the problems of the government, criticizing the government for everything. Bottom line is the government is us and we are the government. A better society is when everybody likes what the government does. So if you do excessive fines and penalties, you're really going to, you know, lose a supporter, not political supporter, but a citizen supporter. And he is going to, or she is going to carry around enmity for the rest of his life, maybe over what he considers or she considers a an unfair maneuver by government. And I think the government always has to take that. When you have this us and them kind of mentality, we are going to punish. We are going to forfeit. We are going to make them suffer. You know, then you lose the social compact. I know it's a 50,000 foot way of looking at it. But I think that government ought to be very conscious of how people feel about it. And when you're giving out tens of thousands of tickets every day, you're making tens of thousands of enemies every day. Is that the right thing? Well, you're, I think, very much correct in that the government is us. And there's a great need for us to engender trust in the government that we have. If we can't trust our government, when the government's us, then who can we trust, right? And the way government can do this is by doing things that are fair. They may be severe, but if they're understandable, then you and I as citizens can get behind it. If it's not understandable, if it's not reasonable, if it really shocks our conscience, we're thinking, geez, what the heck are these clowns in power doing to it? And it makes us all fearful because what happens to Joe Q. Public one day can happen to me the next day. Yeah, and if you want to be firm, fair, and also consistent, universal. And I think one of the things that happened, you remember there was a fellow who, he was a political animal in Hawaii and he could fix a ticket. He was somehow attached to the political party or the legislature or something. I forget his name. And if you knew him or knew somebody around him, you'd call him up. He could fix the ticket. And what troubles me about excessive fines, excessive forfeitures, excessive penalties is that if it's excessive, it's made for corruption. It's made for inconsistent enforcement. It's made for arbitrary corruption. Say it again. It's made for arbitrariness in its application. If you really bludgeon somebody, the question then becomes, well, why are you bludgeoning this guy over somebody else? Or these thousands of somebody else that did the same thing? Or worse? Why are you beating up my guy who's only who's only filed G45s and no G49s? When you're letting, you know, A, B, and C go and they haven't filed any terms. Or paid any tax. Or paid any tax. Yeah, we have to be smart about it. And I'm afraid I'm afraid we haven't. And that's why the tax foundation is so important to take a look at these things and to analyze them from a public policy point of view. And I'm not sure that it's the right time to make that kind of analysis right now when we're in desperate straits for next session and fiscal policy. I mean, somebody said the other day, we could expect to have a $1.2 billion shortfall deficit in this state next year. Wow, how are we going to cover that? 0.4. It's already there. It's not, you know, can we expect, it's already here. If you, you know, compare the council on revenues, revenue projections with the general fund budget. Okay, there's a $2.4 billion difference. And so that's why, you know, the current administration is going into panic mode, you know, with, you know, talk of forfeitures and not forfeitures, but furloughs, layoffs, and, you know, demanding that agencies shrink their budget by another 20% after the furloughs and layoffs. Yeah, so what, you know, okay, so that's one side of the coin. And the other side of the coin is to try to squeeze the taxpayer. Now it's hard to raise income tax. It's hard to raise gross excise tax. It's very politically unpopular. It's a kiss of death politically. So what do you do? You find these little parking ticket kinds of things, you know, and you, you raise up all boats and you, you find ways to squeeze the taxpayer. I think we can expect more of this time. Yeah, no, I think there will definitely be the tax increase proposed in the legislature. One of the things you got to watch out for is that, you know, when you look at all the taxes that we collect, there are basically two big ones and everything else combined is equal to one of the other two. Okay, the two, the two big ones are one, the GE tax and two, the individual income tax, not the corporate tax, but the individual income tax. Why? Because of the wage earners who pay withholding. If you want to make changes in, you know, other kinds of taxes, yeah, you get a few million here, a few million there, but you're not going to get, you know, a billion dollars or two billion dollars, which is what you do. So, you know, what are lawmakers going to do? Well, I don't think they can furlough enough people to really make a big difference. And by the way, furloughing is also politically unpopular. And you have government workers, unions that would scream and shout about it. Were they doing that now? Yeah, sure. They're doing that now and it'll be worse later. Everything will be worse later. So, what does the government do? I mean, it's hard to raise taxes. It's hard to furlough. I guess you got to cut services in some way. I don't see an easy option. Where do you think there's give here so as to get back to a, you know, a balanced budget, which is supposed to be the requirement? I think one of the things that the government's got to do is just to figure where the core services are and then figure out what's, you know, nice to have as opposed to we really need this and start getting rid of the nice to have. You know, realistically speaking, that's what you've got to do. Yeah. And that really has to be done on a rational basis rather than on a political basis because, you know, whatever happens in government in this state and most others is going to be a function of lobbyists and political pressure from constituents and cacophony, pressure from all sides. And politicians these days, especially in this crisis, that they have to, they have to not accept that. They have to say, no, we're going to do this on a completely rational basis. We think we should call Tom Yamachika up and ask his advice. Yeah. And I think in those kinds of times like now, we should be glad that we have, you know, fundamental protections like the Bill of Rights to protect us. Yeah. It was, it was a fun show, Jay. Yeah, including, including the, the Eighth Amendment. So the Bill of Rights and the, it's one of the Bill of Rights. And we forget, but now maybe we should remember. So before we go, Tom, I just have to tell you one short story. I made my mind up to tell you about when I was in the service, I was a legal officer in the service. And one case across my desk about a fellow who went, went AWOL and, and the military judge who sat on that case was a strong athlete. And he was a very liberal fellow. Like he went on freedom rides in the South, that's the kind of fellow he was. And he decided that he was going to make a, make a difference here. So instead of putting this, this young man in the brig, he gave him two weeks in St. Mary's Orphanage, which, which was in that Coast Guard district. And he made him swab the floors in the orphanage for two weeks. Okay. Okay. And the fellow had a crafty lawyer step in and he said, no, no, no, no, no, you can't make me swab the floors in St. Mary's Orphanage because of the Eighth Amendment. That's unusual. It isn't cruel. It isn't excessive. It's unusual. And he made his, he made his appeal on that basis. And can you guess the result? Um, the judge said, okay, you don't want to do this. You go right to the brig. That's exactly right. That's exactly what happened. I thought you'd enjoy that story. So the word unusual has all kinds of, you know, strange implications. Well, thank you, Tom. Great to talk with you as always. I look forward to our next discussion. Take care of you well. Take care. Aloha.