 Think Tech Hawaii. Civil engagement lives here. Aloha and welcome to Hawaii Together on the Think Tech Hawaii broadcast network. I'm Kaley Akina and my guest today is Joe Kent, Vice President for Research of the Grass Root Institute of Hawaii. Well, those of you watching know that the Grass Root Institute is very much on my heart because I have served for the past five years as its president. But I'm delighted at the group of young men and women who are really putting out outstanding levels of research as well as providing education throughout the state and the nation. And they're led by Joe Kent. Today Joe is going to give us an update on what's going on at the Grass Root Institute. We are now in 2018. We've just finished the first quarter. It is April 16th and you'll get an insider's view as to what we're doing at Hawaii's leading independent Think Tech. Joe, welcome to the program. Thanks for having me on the show. Well, and thanks so much for your dedicated service. You and your staff are doing a lot for the state of Hawaii and you're making an impact. Well, thank you as well. You help as well. Well, I try to help. You know, one of the things that we pride ourselves on at the Grass Root Institute is being an independent Think Tank. In other words, we're not funded by any political party. We're not funded by the government and we're not funded by the military or the university. And that's all by design. Why is it important to have an independent research voice in Hawaii? Well, because facts matter and we want to base policies on facts. And so a lot of what we do is just look at the numbers that the government has in its accounting books or behind the veil or try to open up numbers with information requests and just give those numbers to the public and say, okay, you make a decision. So we really want to, we think that an informed electorate and an informed Hawaii will make better decisions for the state. Well, you've touched upon something that is a practice of ours at the Grass Root Institute and that is helping government to remain and to be transparent. That is to say, open to the public, the ability for the public to look in and see what their government is doing. And frequently you use certain tools to bring about that transparency, such as freedom of information act and so forth. Tell us a little about Grass Root's work and being a watchdog and holding the government transparent. Yeah, that's right. Actually, a lot of people may not know, but there's a law called the Freedom of Information Act, which says that all public information is public. So if the government is dealing with it, it's, it's, the public has a right to that information to a certain extent. So we do the work of trying to get that information for a lot of people. And in Hawaii, that process is called the Uniform Information Practices Act. It's basically a bunch of forms that you fill out and submit to government agencies. I was just this, this morning, filling out a bunch of these open records requests to basically ask for how much the government is spending. And hopefully we'll get that information soon. Well, you've asked that of big agencies and small agencies and sometimes they see you coming and they tremble. And they know Joe Kent is there with his Freedom of Information Act request. Now, currently, we are in the midst of a legislative session. And while Grass Root Institute is not a lobbying firm and does not necessarily weigh in on promoting particular pieces of legislation, we do educate legislators as well as the public on the content. Is there any major issue that's been taking place during this legislation session that Grass Root has been trying to educate the public on? Well, mainly it's a lot of tax issues. There's a lot of tax raised proposals that are going through the legislature right now. And a lot of them are going in funny ways, where you have one bill and then they gut the bill and replace it with another bill. And that's called the Gut and Replace. It's a little disingenuous, you might say. But basically, they're doing that right now to cram in a bunch of new tax increased proposals. And that's what we're questioning that process, basically. Well, I could ask you about many of the tax bills that are out there or many of the expenditure bills. But rather than do that, let's take a higher level view overall in terms of where we are in terms of being taxed here in the state of Hawaii. A lot of times, taxes like the weather, it all depends upon what you're feeling personally, as to whether it's hot or whether it's cold or where you're standing. It's not easy to understand the impact of taxation upon us. But we use some tools to scour the nation to see how other states are handling their taxes and compare Hawaii to that. And one of those tools is called the Rich States Poor States Index, which is actually officially going to be released for this coming year tomorrow. It's April 17th tomorrow and anyone can go to our website at grassrootsinstitute.org and take a look at it. Tell us a bit about what that index is and how it tells us how we're doing in terms of taxes. Yeah, well basically it's an index which shows which states have an opportunity to become rich and which states are poorer. And those factors and measures are things like taxation, union presence, regulation, and union, excuse me, unfunded liability, debt for pensions and health benefits and things like that. So it ranks all the states on these different measures. And if the state is ranked higher, then that state has an easier chance to become rich, you might say. So there's an impact on our policies and practices with regard to all of those things you mentioned, such as taxes or such as our employee retirement system benefits and so forth. There's an impact of all of that upon overall economic well-being for the economy and for the individuals. Let's go to the current report of Rich States Poor States. How are we doing in the area of taxes? How do we compare to other states? Well unfortunately we rank pretty much dead last when it comes to taxes. We have the highest sales tax burden in Hawaii or in the nation. And what is that sales tax burden? Well it's a general excise tax, but if you rank it as a sales tax, then it becomes the most burdensome sales tax in the nation because of the pyramiding effect that the tax is levied on all factors of production. So then when that tax is totaled up, it racks up to a big cost. And according to this report, it makes us dead last. Now isn't that excise and sales tax something that looks quite attractive to our legislators? Almost every session there are bills for raising it. In fact, in the last session we raised our general excise tax in order to help fund the Honolulu Rail project. What are the concerns about continuing to raise this tax? Does it help or hurt the middle class or the poor or the rich? Well Hawaii is the highest cost of living in the nation. At least Honolulu is the highest cost of living city. And increasing that tax will only increase the cost of living even further. So if legislators or lawmakers want to ease the cost of living in Hawaii, raising the general excise tax is not a really great way to do that. Now if you're fairly wealthy, have that tax going from maybe 4.5 percent to 5 percent at the first level may not really impact your lifestyle. But what does it do to those at the lower end of the economic ladder? That's true. They call it a regressive tax, meaning that those who have lower incomes end up paying more of the tax. And so by raising the general excise tax you're actually hurting the people that you're trying to help, the people who have low incomes and need to buy a lot of groceries and things like that as a percentage of their income. And a lot of those people at the lower end don't have tax evasion strategies or tax minimization strategies. They'll buy their weekly groceries or daily groceries at the corner store and so forth. They'll pay that retail tax over and over again. And so what they get impacted with is not just the raw figure of somewhere between 4.5 and 5 percent, but they actually get impacted by a much higher figure around, is that right, about 13 percent at least? That's right because the 4 percent or 5 percent that you see on your bill on the receipt is just the tax at the end. But the tax is also added into, it's baked into the actual price of the product itself. So it ends up being like 13 percent of the price of the product. And that's a pretty hefty tax. Now this tax in the end is so attractive to our government because it's the tax that keeps on giving. Or it's the tax that keeps on taking. And every single sales transaction, that dollar is taxed again and again and again. And it makes up a huge portion of our state's general fund. About half. About 50 percent, is that right? About 50 percent of the whole general fund is from the general excise tax. Now do you think the average taxpayer out there or the average consumer knows that that's the ultimate impact of our GE sales tax? I think a lot of people think that we have low taxes actually, unfortunately, because they see that 4 percent. But it's a deceptive tax, it's a hidden tax actually. But there's a lot of other taxes too, that's not the only one. Okay so that's part of this analysis that we're looking at in rich states, poor states, in which we are compared to other states. And you say then in terms of GE tax, we're ranked, well where are we in the current forthcoming edition of rich states, poor states? Our 50th, when it comes to our GE tax. GE tax, we are 50th out of 50 states, is that right? Yeah that's right, so that's lucky you live Hawaii. That's right. And when we look at other states we see the measures that are quite different. For example, many states have come to understand the problem of the regressive taxation of the poor with the GE T and so they've lifted it for certain categories, such as for medical or for food and so forth. But we're still taxing that in Hawaii. That's right, and there are some states that don't have any sales tax so it's something maybe we should consider maybe. Okay so that's one of the measures that says our economic outlook is fairly poor. What's another measure? Well another measure is the income tax. I guess we're talking a lot about taxes. Okay sure. Hawaii has, we rank 48th when it comes to the income tax and I think that's because we have the highest income tax bracket, the most number of income tax brackets and the highest. So we actually tax 11 percent on people making over $200,000 a year. And the only state that has a higher tax than that is New York. So my goodness. So again, lucky we live in Hawaii. And one of the reasons why a good number of people and businesses are leaving Hawaii. That's right, that's right. And now we're talking about taxes on the rich, but the rich in Hawaii actually pay the most in taxes. They pay 62 percent of all taxes in Hawaii for income tax are paid by people making over $100,000. So the rich are paying the most and now we're taxing them even more. There's no, it's not clear whether or not raising taxes on the rich will generate more taxes since the rich might leave one day. Well before this show we had one featuring Tom Yamachika, president of the Tax Foundation of Hawaii who serves as one of our advisors at the Grassroot Institute. He's our go-to guy in terms of understanding tax policy. We had a joke on that program when we were discussing the impact of President Trump's tax package and the joke was this. There's both good news and there's bad news. The good news is only the rich are going to pay more taxes. The bad news, you're now rich. Now that wasn't exactly right. Tom parsed it out a bit, but there is a little bit of deceptiveness here in the way we're responding to the federal tax package that in general, most people in the short run, according to Tom's analysis, are going to have some reprieve from high taxation by the federal government. But something strange is happening at our state legislature. Now that they know that our citizens are going to pay less in federal taxes, what are some of the bills counting on in our state legislature? Well there's a bill out right now that basically says within the text of the bill that it's going to use the opportunity of the tax cuts to gain taxes for the state. So although folks in Hawaii might see some benefit from the federal tax cuts, those taxes now are seen as an opportunity and the fruits of our labor are going to be eaten up as a free lunch. In other words, the hunt down and fared out any opportunity to save money by being taxed less. And if people are going to be taxed less by the federal government, let's make sure our state taxes them more. We're going to be back in just a moment. I hope you enjoy some of the insights into how our economy is working in terms of the government's role in it. Joe Cantes, director of research, vice president for research at Grassroot Institute, looks at this very carefully. When we come back after this break, I'm going to ask him to share a little more about how we're doing compared to the rest of the nation and talk a bit about some of the solutions that are being developed at Grassroot Institute. This is Kayleigh Ikeena on Hawaii Together on the Think Tech Hawaii Broadcast Network. Don't go away. Dave Stevens, host of the Cyber Underground. This is where we discuss everything that relates to computers that's going to scare you out of your mind. So come join us every week here on thinktechawaii.com, 1 p.m. on Friday afternoons, and then you can go see all our episodes on YouTube. Just look up the Cyber Underground on YouTube. All our shows will show up and please follow us. We're always giving you current, relevant information to protect you. Keeping you safe. Aloha. Aloha, welcome back to Hawaii Together on the Think Tech Hawaii Broadcast Network. I'm Kayleigh Ikeena here today with Joe Kent, vice president of research at the Grassroot Institute of Hawaii, where we stand for individual liberty, free markets, and limited accountable government. Joe has been with the Institute for about four years and he shepherds the research efforts as well as the educational efforts that provide citizens and legislators and other policymakers with the latest information on which to make good decisions as well as suggestions as to solutions. One of the sources for our information is the way we look at each of the other 49 states and see what works and what doesn't work. And one of the tools we use to do that is an annual report called Rich States, Poor States, which you can find on our website, www.grassrootinstitute.org. That's just grassroot without an S at the end. www.grassrootinstitute.org. Go ahead and download the Hawaii version of the Rich States, Poor States report. Joe, back to you again. Now that Rich States, Poor States report compares us to other states in many, many categories. We were talking about taxes and there are about 15 basic categories, but one of them happens to be in terms of the extent of our unfunded liabilities for our employee retirement system and employee health system. And you've been researching that quite a bit and Grassroot Institute has been known for several breaking news reports about the condition of our state's employee retirement system. Where are we in terms of our unfunded liabilities? What's that level up to now? Well, there are two unfunded liabilities that we talk about. One is the pensions and one is the health benefits. The pension unfunded liability, if you talk about the state's number, is about $12 billion. That's missing from the fund. And the same for the health benefits, about $12 billion as well. It adds up to about $25 billion that is owed to our retirees, but it's not there. It's missing. And so if that money were in the fund, then it would grow with interest and it would be given to retirees after they retire. Well, I have a private retirement for myself and that company is funded about 125 to 145% of what it owes its future retirees. In the state, what's the problem with being underfunded and having unfunded liabilities? Can't we just put it off forever to our great-grandchildren and our great-great-grandchildren and our great-great-great-grandchildren? Well, that is the problem. We're funded at about 50% right now, 54%. And that means that our grandchildren, our great-grandchildren, and me, people like me, are going to have to try to make catch-up payments and be taxed higher to try to make up the difference. Now, we're not the only ones in the nation who face this. Across the nation, this problem has arisen. And this is the way we do work at Grassroot. We look elsewhere and we say, well, how have other states handled this? And first of all, where, according to the Rich States Poor States report, do we rank compared to other nations in terms of our other states in terms of our unfunded liabilities? Well, when it comes to our pensions, we're ranked 45th. 45th? Out of 50 states? Out of 50. And when it comes to the health- You're not making this stuff up. Every time I ask you where do we rank, we're down there at the bottom. Yeah, you might think I'm a pessimist, but actually I'm optimistic about this, but- Okay, so we're 45th? 45th when it comes to our public pensions. All right. And when it comes to the health benefits, we're 50th. You mean dead last in the entire nation? That's right. Again, lucky we live Hawaii. Do you think most people out there in our state understand this? I'm not sure if most people read this report, but you can at grassrootinstitute.org. Now, there are some states, however, that used to be fairly low in the ranking, and they have found their way up. They've adopted some policies that we may want to take a look at as best practices. What would be one or two of those policies? Right. Well, with the pension benefits, a lot of states are doing something called a hybrid plan, which is it's offering employees more flexibility and choices over their retirement. Plus, it helps them make sure that their retirement is fully funded after they retire. So these hybrid plans are helping states reduce and eventually eliminate all their pension debt. In Hawaii, we have actually a hybrid plan, but it's hybrid in name only. It doesn't function as a real hybrid. A real hybrid would try to match the promises made with the amount of money that's put into the system. So why are our numbers so high? Why do we have such a high level of unfunded liabilities? Part of it is back in 2001 or 2000, there were a lot of lawmakers who were skimming off the top of the pension plan. And when they took that money that was supposed to be in the plan away from the plan, that punched a hole in the debt that kept on growing until today we have a huge debt. So that's one reason, but another reason is we keep making promises that aren't connected to the amount of money that we're actually putting into the fund. I see. Now at Grassroot Institute, we don't really just sit back and want to criticize. We're not interested in kicking a grown man while he's down. So we actually have been big fans of some of the efforts made by our state legislature and the employee retirement system in the past few years. Do you want to tell us a little bit about that? Well, in 2012, that's when it started, they actually tried to reform this problem and they actually created a new plan that would have all new employees put into that plan. In fact, when I started working for the state, I was put into that plan. And the idea was that we're going to try to moderate the promises that we make to employees. So that helped to reduce the unfunded liability in the long run. But in the long run, there's still a big problem. And unless we do further reforms, the unfunded liability is going to grow, unfortunately. What do you think Hawaii can do in the near future? What steps do you think we might want to consider taking based upon best practices that other states are following? One thing is millennials, young people in government right now, the pension plans don't really match what they are looking for. So, for example, I used to work for the government as a public school teacher. And I quit before five years, but the vesting was 10 years. And so that means all of the retirement money that I put into the fund, all of that will just vanish. And I won't see any of that money. And so because of the long vesting times, that puts me at a disadvantage, and it doesn't match with what I'm looking for as a millennial. And a lot of other millennials are job hopping quicker than their parents used to. And so the pension plans don't match what they're looking for. So what I propose is to create a new type of pension plan that would offer more flexibility for employees, and they could opt into this plan. That plan would help match the promises made with how much money is in the system, but it would also add things like portability and lower vesting times that are attractive to current employees. So maybe new employees could go into there, but maybe current employees would want to opt into that system in order to see more of their retirement realized. Well, I like that. And I'll tell you why I like that, not only because it's a solution that could be considered, but of where it came from. At Grassroot Institute, we didn't sit back and say, this is an ideology that should be followed, or anything like that. We surveyed the other 49 states for best practices. We used indices like the rich states, poor states, and found out which states are actually solving their problems, and we want to bring those solutions home. But just to go back a little bit, you raise a very significant issue when you talk about millennials. We need to have an employee retirement system that can meet their needs based upon the fact that they're not likely to sit in one job for 30 years and wait for their pension. The whole world of work has changed so radically. It could be that they're going to do two or three stints as Uber drivers and have their own pension plan during that time and so forth along the way to wherever they're going to end up, which is constantly changing. But changing our system to accommodate millennials will also help the economy because we're losing a lot of millennials to the brain drain as they go to the mainland because their needs can't be fully met here. What are your thoughts about that? Yeah, that's right. Well, I mean, even I am thinking about sometimes the thought wanders through my head of moving to the mainland. Yeah, you may want to direct the Grass Root Institute of Omaha. Well, sometimes I watch this show called House Hunters. I don't know if you've ever heard of it, but they look at how much houses costs and everything, and it's tempting watching that show to look at the price of a house on the mainland, but millennials are thinking about this. All my friends are talking about this, and if our systems in the state don't match what young people are looking for, then we'll look elsewhere. That's right, and that ultimately hurts the future of the state in terms of the quality of workers here, and it hurts our government because if our government can't attract the brightest and best and retain them simply because of a foible over the way we handle our pension benefits, we're going to have less quality work in our government. That's right. I mean, there's problems with the pension benefits for a millennial employee, but there's problems for the unfunded liability for millennials who aren't even in the government because they will be taxed for this, and according to the latest numbers, it's going to be about $25,000 per person, and plus the health benefits would be $32,000 per person. That's about $57,000 per person that we're talking about. And those numbers which show the liability per person in the state of Hawaii put us into a fairly low position on the rich states, poor states chart. Where are we in terms of that unfunded liabilities? Oh, we're about 45th when it comes to it. Again, you know, now I hate to end the program on a pessimistic note, but the numbers are pretty much all the way down there. For example, in estate tax, death taxes, where are we? 50th. Okay, I better stop at this point and simply say to our audience that if they want the full report to go to www.grassrootinstitute.org Joe, I want to thank you for the analysis that you've given today. I want to end on this note that you've done a great job with your team in coming up with solutions, and we'll have you back to talk about some of the policies that have been implemented thanks to help from the Grassroot Institute. But if anybody wants to get involved, would you just look at this screen camera over there and give them our website and phone number? Well, if you want to get involved, please visit grassrootinstitute.org. That's grassrootinstitute.org. All right. Well, Joe, thanks for being with us today. And everybody, thank you for being on Hawaii Together, where we believe that we can accomplish more working together than working apart from each other. I'm Kaley Akina. You're watching the Think Tech Hawaii Broadcast Network. Until next time, aloha.