 Okay, we're back. We're live. This is Stink Tech, Hawaii. I'm Jay Fiedel. Today we're going to talk about tax, talking tax with Tom. That's Tom Yamachika. He's the president of the Hawaii Tax Foundation. And let me say this before I actually introduce him, Tom. Tax is really important. Tax is going to affect your life one way or the other. Tax represents the biggest part of your relationship with government. The tax is also an indicator on how government is doing. Tom Yamachika, welcome to the show. Great to be here, Jay. You've got a member. The power to tax is the power to destroy. You bet. So it was true, is true, and will be true. And it's part of democracy, but we have to be attentive to it. So the legislature is in full tilt boogie right now, and there are all kinds of bills, probably thousands of bills, and some of them have to do with changing our tax. Can we talk about some of them? Sure. As with a number of other years, there are bills to increase the income tax yet again. This one's House Bill 2385. It would make the top tax rates 12% and 13%, which would let us beat California for the highest tax rate in the nation. So wouldn't that be fun? Well, why? Why is this coming up at all? Why can't they just leave it alone? Because they need more money to do what they want to do. So is this a matter of what? Inflation? Is it a matter of new projects that some smart guy thought up and cost more money than we have? Is it a matter of the council on revenues trying to figure out how much we got coming in so we can determine how much more we need to do our thing? Well, if you want to figure out what the other thing is, we have lots and lots of programs going on in the state government. Some of them are justified, some of them are less justifiable. In some we have waste and overuse, in some less so. Tom, I know that if they let you and me loose in the legislature, we could cut those programs out in about 20 minutes. And you know what? Then we wouldn't have to raise taxes, would we? Yeah, well those programs are buried real good. I don't know if you and I would be able to find them in 20 minutes. Right, hidden, right. Yeah, I mean one of the problems is that a lot of money that the state government has is squirreled away in these things called special funds. And nobody knows where they are. Nobody knows how much is in them. And if you ask people, not one person can tell you how much money there is in the entirety because these funds are everywhere. And some people know about some of them, some people know about others. But I don't think there's anybody who knows about the whole thing. Now the individual departments who have special funds are supposed to report that to the legislature? They don't always. We've seen reports come out from the state auditor, time and again that say, hey, you guys, you have these special funds, you didn't report them. And then the department goes, oh, let's take corrective action. We'll deal with that later. What do they actually do or not is, you know, under question. You'd think somebody would be watching him on that. You know, I remember years ago, not that many years ago, there was this big issue about how many employees the state government have. And round and round for months came out that we don't know. We don't know how many employees the state has. And therefore, we don't know what we're spending on them either. Yeah, that's a part of the problem because employees are coded general funds, special fund, federal funded with, you know, different kinds of what they call means of financing. So if you don't know how much money you're spending on them, you don't know how much, you don't know what you're paying your employees with either. So it's a bit difficult. Okay, so when you say 11 and 13, you're saying, is that a difference between corporate and individual rate? But why do you give two numbers? That's the top individual rates. Right now, we have it going up to 11. Oh, I see. So it changes to 13. Yeah, so the two new brackets would be created 12% and 13%. And these are for, you know, people with, you know, six-digit incomes or higher. Yeah, but you know what, it seems like a small amount when you're just going from 11 to 13. But in fact, that's an amount that's 20% more in terms of the increase, right? Yeah. So that's going to have an effect on everybody because we're one of the highest, right? You mentioned one of the highest rates in the country right here in Hawaii. Yeah, but that's not the real problem. The real problem isn't the income tax. I mean, it produces some of our state government revenue, but the big problem is the GET. And the GET is, you know, very insidious because it applies to everybody because everybody who goes and buys something is going to be indirectly or directly paying the GET. Now, I heard that this year, I mean, maybe it doesn't go anywhere. But this year, at least some people were considering making exemptions for what? Medicines or medical services? Is that in play? That is still in play. Yeah. There are various forms of it still floating around the legislature. Medical devices, medical services, feminine hygiene products. You know, there are bills to exempt to some or all of those. And the states on the mainland that don't call it a GET, they rather call it a sales tax, you know, most of them do exempt those kinds of things from the sales tax, don't they? Yeah, there are a lot of states that have exemptions of that kind. I mean, number one, sales tax usually doesn't reach services at all or just a very few selected services. So medical services wouldn't be picked up. And then they would have some exemptions for drugs or medical supplies. And ours has some exemptions too. You know, I mean, I would support or reduction, I would support appropriate exemptions here because I think the sales tax is too, it's too overarching. It's too plenary. It covers too many things. I mean, the rest is so- That's not what you wanted! It's argued for this for its whole life. Let's make the sales tax, you know, complete. Every little thing. But you know what? Maybe it's not a good idea, especially when you have a regressive effect. I mean, it's a double whammy regressive effect when you do it on medicines because these people can't afford medicines. It's the little guy that gets killed on medicines and the medical services. Yeah, and everything else is true. Right, right. Well, everything else is true. Yeah, so one thing you got to watch for is this bill called the State Improvement Surcharge, which is going to be lifting our GET by another half percent. You know, this is on top of what the counties have put on already for five years. It's supposed to be temporary. You know, that's in theory. Whether it comes to pass, we don't know. Because, you know, stuff has been temporary before and has changed the permanent status. Like, you know, the 9, 10, 11 percent income tax rates that were brought into effect, I think, in 2009. So we had a temporary 9, 10, and 11 percent top tier brackets for 2010 to 2015. We lost them in 2016 and we thought, oh, we're rid of them. But in 2017, they came back with the bill that says, hey, let's reinstate these and we'll pay for the earned income tax credit that way. You know, and that's what passed. You go to New York State. I don't know exact rate, but New York State has a sales tax, well, a sales tax of like 8 percent. So people think, oh, wow, that's more than Hawaii, but not really. No, not at all. It only applies to some things, not other things. There's not plenary over everything. And so I think, you know, people, there's a confusion in that. So when they say, oh, we're going to raise you by half a percent, that is a huge raise because it covers everything. And I think we'd be very careful about treating the G.E.T. lightly. It's very, as you said, a very powerful tax. It's the one that has more effect than anything else, any other tax. Well, a half percent tax rate hike can be expected to generate between quarter a million and $300 million annually. That's a lot of money. Yeah, yeah. So, you know, so when they think of these new projects, some of which are cockamamie to start with, they really want to think about the effect on the small guy with a regressive tax like this. I hope somebody's thinking those thoughts. And speaking of regressive taxes, we can also go on to carbon taxes. You've heard of carbon taxes, right? I've heard of them and I haven't seen much of them. In fact, I don't think the country has seen much of them. Yeah, I think there's like maybe one or two states or one or two cities that have them. I don't think a state does yet. But the idea is for a tax to be imposed on any kind of fuel that basically when you burn it, it throws carbon into the atmosphere. And the tax, you know, the tax amount is based on the amount of metric tons of carbon dioxide released by the burning of this gas. So what this bill, Senate Bill 3150 does is, you know, when we talk about gasoline, for example, we already have taxes on gasoline. We have a state fuel tax of 16 cents a gallon. We have a economy fuel tax that's between 16 and a half and 23 cents a gallon depending on which economy it is. And then this will be on top of that. Okay. And the amount of carbon tax they're talking about is, you know, between 40 and 80 dollars per metric ton, which would be when you work out to, you know, per gallon, it's 17 cents per gallon when it starts. 53 cents a gallon when it's fully phased in. And that's an 80 dollars per metric ton. It sounds, you know, it sounds regressive to me. Let me give you an answer to drive the car. Anybody who wants to drive to work is going to be hit with this. But most of us do drive to work. I can understand the motivation behind it. I mean, of course, you know, you want to reduce the amount of carbon in the air. You want to reduce the amount of carbon in the world. You want to do your part to millerate climate change and all that. But, you know, we have not been successful in taking cars off the road. And I would doubt actually that there's a significant effort in the legislature now to do that. Over the years, you and I have both seen all these efforts that failed about, you know, trying to, you know, avoid cars coming on Monday, Tuesday, Wednesday, or shorter hours for state employees or, you know, the traffic jams. The traffic jams are so unproductive. They're damaging and detrimental state economy to the quality of life to the highways. This is not going to actually do that. This is not going to help where it needs to help. That's my reaction to it. What is your reaction? Well, there's all kinds of ways to raise revenue. This is being talked about by the environmentalists all the time. It's got the state climate change commission behind it, so there's some considerable weight behind it. But really, I don't think it adequately considers the plight of the, you know, the ordinary person. You know, people have, you know, I've written about that tax before, and people have said, you know, don't you have a shred of morality? Don't you know what's going to happen to the planet? And I said, look, it's fine to worry about the end of the world, but a lot of your constituents worry about the end of next week. Right. Can't eat. Wind up homeless, and I'm sure that's increasing. But the other aspect of this, which I find interesting, is that remember the barrel tax? It still exists. Right. And every year is a scramble on who gets it. And the original concept was you collected off a barrel of oil, then you put it into renewable efforts and climate change efforts and all the environmental efforts. And over time, you know, it's eroded like there's a hole in the barrel, and all the money that's collected doesn't go to those noble purposes. It goes hither and yon, hither and yon, not a whole lot of control about where it goes. And so I would ask you, is there anything in this bill, Tom? That would control the carbon tax to go to the right place, to go to the environment, to go to climate change? Or is it just going to go into the general fund and pay other bills? Well, the carbon tax as proposed by this bill would replace the barrel tax. And I kind of beg to differ in a way that I support all of it going to the general fund because there you know where the money is. You have legislative oversight over it, and you can actually have people watching it. Whereas in special funds, they say that the money is so-called earmarked for certain noble purposes, but whether it actually goes there, you don't know. And the amount of oversight that's applied in practice, I don't know what that is. Okay, well too shay on that one. I can't say I disagree with you, but let me ask you, has this got a chance of passing because it's been raised before? Well, it's passed crossover, so it's still alive. Who knows what's going to ultimately make it to the end? I think if people kind of wake up and see the prospect of this kind of major hurt happening to their pocketbook, they may kind of jump up and say, hey, we've got to do something about this. But they haven't yet. Yeah, it's the old notion that taxes don't go down. They never go down. So you have the barrel tax, whatever that is, it takes money out of your pocketbook and you have this replacement carbon tax, but it's not cheaper. It's more. Oh, it's much more expensive. Yeah, the barrel tax currently is $1.05 per barrel, which works up to maybe two and a half cents a gallon. Well, let's see what happens. I mean, if the environmentalists say they want to have this, even though they're not getting a direct benefit, they're getting an indirect benefit, but not a direct benefit. I guess the state wants to have it as they have more money to spend on these projects. Again, it's a question of what's the moral imperative. If the moral imperative is we need to protect the environment at all costs, then that's what you do. You basically start treating hydrocarbon fuel as a sin like you treat liquor and tobacco as sins and you tax them higher or you ban them outright. Well, I know one journalist and professor at the UHS School of Communications who says the most important story of our time, and you probably say that today, even today, with the coronavirus and all, is climate change because it's wrecking the planet. And so if you were king or if I were king, the two of us were co-kings. Okay, let's make ourselves co-kings. And we were determined to deal with climate change as an existential threat to the survival of the species. We would take much more dramatic steps. We would make sure that there was a way to stop these fossil fuels in their tracks. We would say from now on, it's all electric cars and electricity has to be generated by renewable sources. That's what we would say. We would get there, not by 2040 or 2045, but get there right away. But government, you know, in a democracy, it doesn't work quite that way. Even if climate change is inexorable, government may not be able to get there fast enough. So let's talk about, since you're on the greening topic there, let's talk about green fees. Now, by green fees, I don't mean what you pay to get on the golf course. But there are what they call green fees in other places, like the Maldives, Galapagos Islands, and so forth. Basically, it's either an entry tax or a departure tax. So you want to go there, you pay this fee. Or you pay this fee once you leave. It's an airport fee. It's a fee on people coming and going. It's a fee on people coming and going. Does that include local residents as well as tourists? I think it depends on the locality, but the ones I've seen do have exemptions for local residents. Why has the Commerce Clause come to mind? Can you impede commerce that way? Is that constitutional? You can impede commerce, but there's something more fundamental afoot. It's called the constitutional right to travel. Because we are citizens of the United States. We have the constitutional right, and the Supreme Court decided a case in the 1800s that say we do have the right to go as we please between states, unimpeded by such things as a departure tax. Because Nevada tried to put one in in the 1850s. It was $1 per person leaving the state by train or stagecoach. They didn't have buses yet. And the Supreme Court said, well, that's unconstitutional. You can't do this. Because that impedes the constitutional right to travel. What's the difference? We don't have stage twitches anymore. You heard it here on Think Tech. But that's what I told the legislature. We still have this case called Krava v. Nevada. It's still good law. It established the constitutional right to travel. And if you do this, you'll find yourself in federal court and you'll be shot down. That's embarrassing. It means we don't fully understand the right to travel. And then if you just start discriminating against foreign people that are not protected by the constitutional right to travel, then you have the problem that you discriminate against foreign commerce. You also have the notion that Hawaii is killing the goose. I mean, tourism is our middle name. We can't afford to start squeezing the goose on that. We need to protect it, especially in a few of the difficulties of coronavirus. We're already squeezing the goose. You know how much our transient accommodations tax is? It's twice as much as it was when the law started off. So you have the transient accommodations tax plus you have the green tax. What do we think of next? What's the vehicle tax? Okay, so forth. Tell me more good news. That's not going to pass, is it? I sure hope not. Right now it's a bill to convene a study group and do a study. And the Office of Planning says it's going to be like $450,000 to do. And I'm saying in my testimony, send me your money. This is unconstitutional. But do something else. We could use that money elsewhere, you know? $450,000, yeah. Yeah, go save some homeless people or something. See, I'll tell you, Tom, you and me, we could be the study group. We could do it for much cheaper than that. And we could give them an answer in about 20 minutes. Exactly. And what about empty homes? You want to talk about the empty homes tax? Totally, yes. There is a proposal, Senate Bill 2216, and by the way, the green fees bill was Senate Bill 2696. But the empty homes tax is basically how it works is you get sent a monthly return every month that you have no property that you don't qualify for a homeless exemption for. Okay, so you could be renting it out. You could be using it as a vacation home, whatever it is. But as long as you don't qualify for a homeless exemption, you'd be paying this tax every month. And what would the tax be? It would work out to annually 5% of the value of the property. 5%. Now, just to give you a comparison, in Honolulu here, our residential rate for property are the property tax we pay now. It is $3,050 per thousand. That's a lot less than 5%. Yeah, 5% is $50 per thousand. Just so you can compare apples and apples. Well, this sounds punitive to me. It is punitive, but there's a more fundamental problem with it. And the fundamental problem is its property tax because it's imposed on the inner property and it's imposed because the owner uses it or doesn't use it in a certain way. And the only people in this state who can impose property tax are the counties. We, the people, wrote that into the Constitution in 1978. Doesn't the state have power over the counties? Doesn't it preempt on things? Well, no. The state constitution preempts the state. And it gives the counties the power. So this is unconstitutional under the state constitution? Right. Something is there to control our state government and that's our state constitution. And then there's the federal government and the federal constitution that we have to abide by. Have you mentioned this to them? It's in my testimony. Well, see what happens. Maybe they should have another study and you and I can do the study cheap. I hope they don't have to spend $450,000 finding out what's in the state constitution. Really? Yeah. We only have three minutes left, Tom. And I want to get to... I know you have more on your list, but I just want to get to one big question. We have, right now, coronavirus has not made a substantial impact on air travel and tourism into our tourist industry here. But it may. In fact, I would venture to say it will. If just hypothetically, we had a big scare, a lot of cases come down. When the testing starts, they're really going along. And people far and wide say, gee, that's a dangerous place. I'm not going to go there. And so tourism drops off like it did in SARS, like it did in 9-11, and the beaches are emptied and so forth. And that's a big source of revenue for the state. I mean, the Council on Revenues would certainly include that in its expectations for the amount of revenue the state would receive in a given fiscal period. So if that happens, we're not going to get so much revenue. And I just want to know what happens if that happens and it's fairly likely something like that will happen. Yeah, but we know our state. Yeah. We have a rainy defund that we've established a deal with emergencies like this. It's been fed over the years by the legislature. We actually put some money in it last year, I think it was $5 million more. So we have some money in there to help cope with the situation. It won't last forever, but at least it's something. That's what we have. That's it? That's your answer? You know, this could be a major economic crisis for the state. Let's assume, let's assume, I'm taking a step further, let's assume there's not enough money in there to do much at all. What happens? I think we come back to furlough Fridays and government issuing IOUs instead of cash for things it buys. Up to the merchants whether they want to take them or not. People get paid less. And then we've had experiences with that before. Yeah, well, it'd be hard to collect taxes, especially increased taxes, wouldn't it? Because nobody would have a lot of... Nobody would have my period, yeah. Well, remains to be seen what happens, but I think you and I have to keep on talking. Because I think this will emerge not necessarily as a fact, but as an increased threat over the next couple of months during the legislative session. And they really need to think about it. Yeah, those people in that square building behind you are going to have very important roles to play. Yeah. And so is the press, and so are you. Thank you so much for doing what you do, for checking up on us. It's not like the average citizen goes to these hearings, but you go. It's not like the average citizen follows all these increases in tax, all these increases in tax. But you do, and we should appreciate that. And we should appreciate other members of the press and the professional groups that do follow these things. So it doesn't happen in a vacuum. Thank you so much, Tom. Thank you, Jane. Aloha.