 Okay, we're back for a live. I'm Jay Phydeck and this morning on a given Wednesday. We're talking with Tom Yamachika We're talking tax with Tom and it's a very interesting morning to talk about tax. Hi Tom. Welcome to the show Thank you, Dave. Great great to be here You know We've often said You and the Tax Foundation of Hawaii and me and wherever I've been is we'd be better off if the legislature We're not in session they're taking off the old the old quote no man's life or was it life or No man's life or property is safe while the legislature is in session. It's a joke. However Now we have our wishes is Satisfied the legislature is not in session. It just dropped off a cliff But yesterday day before So here we are without a legislative session in the middle and as a result of the corona crisis, what do you make of it Tom? It's unprecedented. We haven't seen anything like this before and it's not just the legislature either The Department of Tax has come out and said, oh, we're gonna be closing for business You know, you can call us but don't come in because our offices are not open to the public anymore That was effective today. So it's an interesting brave new world. We have here at least for the time being Yeah, well, why are you talking about the Department of Tax? I mean, they do have the certain power the power of not requiring You know people to file by the statutory deadlines and I guess they have they have exercised that power and They have told people they don't have to file about the statutory deadlines. What's the situation there? You know, it's the opposite Well, that while the fence have told people That you know, you don't have to file by the statutory deadlines The state tax office is telling people that we're out. We have all the deadlines in place. Nothing's changed You know, we'll go do business as usual when when the world is not as usual. Oh So That's so what April 15th we we have to file by what is it April 15? April 20th. Thank you, right five days after the federal So there's no change. There's no change in that Okay The HS CPA the boys society's CPAs. I know I has sent the Department a request To give people breaks on the deadlines and filing payment and stuff like that so far there has been nothing No action on that request, but the Announcement of that came out well yesterday and today Basically says we're not moving any of those Which which kind of makes sense because the state government has to run to and they need their money. So They can't spend money like the fence can We need the money to keep coming in Or they're gonna be in a bigger bottom than they are now Yeah So so interesting though that Does does the State Department of Taxation in the absence of an active legislature? Does the State Department of Taxation have the power to extend those deadlines? Uh Obviously they can't you know vary what's been put in the statute But what they can do is they run it they can say well If you file a few days late, we won't you know, we'll look the other way I mean, um law enforcement agencies in general can do that they can do that too So effectively practically they do have the power and they can Look away for a few days or a few weeks or whatever whatever delay Yeah, yeah decide on Okay, and but as you say the state the state is um The state needs the money more immediately and the state will have a more immediate burden um Except what I what I don't know is exactly what that burden is and how it's changed Because of the coronavirus the state was contemplating wasn't it it was contemplating benefits to uh Employees employers and the like because they're working from home and not working at all But all that seemed to stop cold is what what happened to all those things that were being considered We don't know the legislature is out of session. So They're not talking about that Uh in in legislative section the the tax department obviously has some power to Change the rules a little bit, but so far they haven't exercised that power So we really don't know what's going on um, you know to be fair This is just the first of you know, many days of this change situation. So uh Answers may not be forthcoming for a little while. Well, you know, once they And their puddle would internally and figure out what to do Yeah Yeah, we hope to talk to run coachy and other legislators about you know, what their plan is because Although the legislature is not in session. There's a lot of the leadership Is still in the square building trying to figure out what to do I guess Are still Ethical offices Yeah, you know, because they are trying to avoid large public gatherings They're not they're not having floor sections and they're not having committee hearings Which normally would happen otherwise Um, that's where we're at You know this This friday would be a particularly eventful deadline because It would be The deadline for I believe second lateral, which is what Time that bills have to be in their final committee on the other side From which they originated But right now, uh, the the deadlines out in the air I'll say I mean They're not going to be able to pass even, you know, the most rudimentary legislation without Without coming back for a special session or resuming the session. They just recessed Maybe they intend to wait maybe they're going to wait till april or may and put it off when things cool off Although nobody really knows when things will cool off Yeah, I mean typically, um Uh, infection rates follow a bell curve So I think they're just kind of waiting for the uh For the infection to kind of turn the corner of before they start contemplating public sessions again And nobody really knows what that's going to be at this point Oh, and um, it's it's risky business because it's like um that first Retro thing in china Where they send everybody back to work Um, but it was like maybe a little too early And then you had a second wave of of the virus I think that may be resolved now But you always risk that if you go too early and you don't you don't know if it's too early Uh, and then you wind up having a reinfection So people are going to be I think they're going to be very conservative about that So is there any reason Go ahead Well, they should be Is there any reason why the legislature cannot vote by remote? Well, they they they can um In some hearings, I think last year they were Uh, experimenting with um distance technology But that was only with you know, maybe one or two people calling in from neighbor islands uh If if they if they have like You know 50 or 100 people trying to jack into a particular hearing Uh, that may present a you know Again, uh a very different logistical challenge You know in a crunch I don't in a crunch. I don't this is a tech question But uh in a crunch, I don't I don't think you have to have a video Um to do a legislative meeting. I'm not sure what the law is but um, you can do Conference calls and indeed wall street and large business organizations do conference calls all the time large organizations in general including Including governmental organizations have conference calls. They all get on the line. They identify themselves. They they make their statement And I suppose also then you can have a vote the same way um by audio only Um, I don't know if this requires a statute or maybe a proclamation something But it seems to me there's no reason why any legislative body these days knowing what we know about coronavirus Uh, it doesn't move to that kind of model In the future, this may happen again Some say it will happen again and we'll all be quarantined or self quarantined Um, and we we cannot function Legally unless we have a meeting and the meeting could be audio or video and audio just like you and me here today Um, is that been discussed? Is that is that likely to come about? I don't know if it's been discussed. I mean, it's certainly a possibility like you mentioned Um, but I have heard nobody Talk about that as an alternative to Doing legislative hearings. It was just you know, a result gets passed You know, let us the resolution uh, the The capital basically shuts down And press releases come out saying all these hearings have been canceled um to At least in theory start up again once the Uh, once the general session is going again Uh, and that is going to be decided upon by um President the senate and the speaker house Well, I just you know, you and I were discussing this couple of weeks ago And we did not foresee in any way that they would be this sudden recess And we were talking about, you know tax increase bills Um talking about uh, oh various bills that affected state fiscal policy Uh, I'd like to do is um, you know, go back with you to that discussion And talk about which of those bills should resurrect in the event The legislature goes back into session later this spring Which which ones would be the important ones now To deal with coronavirus and state fiscal challenges Well, I mean I can I can Speak to the tax increase bills that are Now on the table We certainly it doesn't take legislation to You know manage the dollars that you have currently And and we're hoping that the departments are going to be prudent and you know spend You know spend the money only when they have to To achieve some good for you know our state um Certainly there are There have been and still will be tax increase bills on the table There's one to increase the input tax rate to 13 percent For the highest infant individuals there's a bill to Add a so-called temporary surcharge to the you know excise tax um For a period of five years starting from 2031 You know, I don't believe that they either But that's what that's how the bill leads now And there are a number of other Revenue raisers in the park I'll take a short break. I'll take a short break and I'd like to come back and talk with you About the kind of pickle we're in That is the pickle where The president has said a lot of this falls on the states Where Hawaii is is out of session And and where Hawaii has a constitutional provision that allows for That you know, you have to balance the budget session a provision and at the same time You know, there are big expenses that we may have to billy up to to Help our people deal with the virus. So let's take a short break time. We'll be right back to address those things Hey, we're back. We're alive. I'm Jay Fidel. This is Think Tech Hawaii more specifically. This is Talking Tax with Tom That's Tom Yamachika of the Hawaii Tax Foundation So, you know, we we've been a bit of a pickle, aren't we because the president Whatever his plans with the trillion dollars. I don't think that's going to help the state meet its obligation Uh, and its needs to deal with its own citizens This is a kind of a super federal situations federalist situation where it all falls on the states at least in the short term Um, and the state Hawaii has a balance of budget provision in the constitution Um, so it can't it can't really exceed its own budget the same time president said you want respirators go buy them It's your problem. Um, and that's not cheap and there are other things just like that So if we and we don't we don't have a session going so we're really stuck, aren't we? We can't raise the money to do the things that have been laid at our doorstep We can't protect our population We can't deal with a with a lack of sufficient beds and medical equipment to deal with a with a true outbreak affecting people who are vulnerable She wins on a situation Go ahead Uh, most of our government's revenue is tax revenue A lot of you know, about half of that is general excise, which is based on business So if you have uh industry tanking Uh, because people aren't visiting the islands anymore Um, at least in the in the short term you will have tremendous downturns in the amount of tax revenue that gets collected so uh At the government level people are still working They need to get paid or they need to pay their rents and you know buy food and the things that you and I need to do um, but the source of the money for that is Is not uh, you know up in question. So Uh, what what's everybody going to do? Um I I hear that the legislators Are thinking of going through different industry groups and saying hey, you know, can we get some concessions from you? Can we dial back some credits? Can we dial back? some To help this economy or help the state government um and keep on functioning And is that um Kind of what you've been hearing as well No, I haven't I haven't heard anything on it yet, but I do see it as a huge problem Uh, I mean an insoluble problem. I mean even the option you talked about about, you know Visiting with business leaders and groups and asking them somehow to kick in Um, they're in trouble too They're not flush. They're under underwater a lot of them and that will continue me when you realize I mean today uh, the governor said He's discouraging people from visiting hawaii for a 30-day period Now that you and I know that's not going to stick at 30 days. It's going to be more than that Who knows how much and you know that that is like putting the pennies on the eyes of tourism So our tourism has stopped and is stopped and will be stopped for a while And as you said, you know gross exercise is dependent on business So you get all the secondary effect. I mean, it's an economics analysis You get all these secondary effect where all the business is to stop nobody's earning anything Nobody's paying or has to pay any Gross exercise tax and the government which gets most of its money from gross exercise tax Um has no, you know, it has a tremendous reduction in receipts at the same time You know, our people are going to get sick are sick now They're going to be in hospital the hospitals don't have the beds or the money to buy new beds new respirators And everyone will look to the state to fill in the gap. This is an impossible dilemma I mean, I don't know where the soft spots are. I can I and then we have the balance the budget thing I suppose you can say well We're not going to follow the balance the budget thing We're going to come back into session and we're going to vote, you know, these benefits and soften it for everybody Including business and individuals and we're going to save the state But that that's in violation of the constitution So, wow Um, yeah, you know, it's like they're coming in the windows. They're coming in the doors Where do you where do you go first to save the state? This is a really big problem not only for the legislature for the governor and The administration in general in the tax office and you name it This is I mean, am I right and maybe I'm overreacting here time, but it looks to me like there's no easy legal solution um to paying For things that we absolutely have to have to save our people Yeah, I think we need to All realize that this is not business as usual that Everybody's going to be asked to do a little bit more to You know help help out because we're all hurting Or or will be And um, you know, whether it's business industry government government itself um You know, we're all going to have to adjust Yeah, because we are not going to have you know as much influx of outside spending as we've had in prior years So where's the soft spot? Let me as I have often done let me make you governor for a moment Uh, what would you do? Well, I I would uh and you know Maybe this would this would cost me my job the next election that comes up. So, uh, I Certainly endeavor to You know Suspend or shut down any non-essential programs um We need to kind of make sure the dollars go where they're needed and Following the greatest amount of uh The stuff that is nice to have Can wait and should wait Until we have the resources to Defend those programs properly But in the in the short term Uh, everybody's going to be in a pinch And we have to you know help each other out as as best we can Uh, and that's where I mean that everybody takes a little bit of pain Yeah, or maybe more Well, that's an interesting idea, you know, you send government home A lot of people have wanted to do that for a long time. You send government home And you don't pay them You you stop the payroll you'd have to have You have to have agreement. So there isn't a big fuss about it, but um, you you send them home We had some some years ago When a donor lingo was uh in power We've had uh an economic crisis back then and that's how we You know salted in the short term We may be talking about furlough fridays or for you know more than that depending on how Oh, what about Already the council of economic revenues has come back And said, oh, you know that that growth forecast that we that we gave you a few months ago Well, it ain't growth anymore. It's not for us. So um, so you can't call an economic gains in the short term And we really have to kind of kind of heal when you know staying put with what we have Yeah, and the uh, you hero report last tuesday, uh, you know, uh projecting a 10 drop Um and a 6 000 jobs lost in tourism And we're having a show on the effects on tourism later today the Keith Vieira um, but uh You know that they they um They changed their mind overnight and the following day on wednesday. They said, oh, that wasn't conservative enough It's going to be worse than what they predicted on tuesday So I think we have a situation where we chase our own numbers and We find it is worse every time we look So one of the possibility that strikes me uh something you said Is that suppose we go out to the public and to business and we say look, um, you know, we know we've extended Or we may extend your tax deadline, but how about paying early? How about how about making um, you know a larger payment to us? Not a smaller one. How about doing that for old angzine? How about doing that for the community and you get credit later and we'll pay you interest on any excess Over the tax you're you know determined to Um in the meantime, we need the money Uh, could that be done and wouldn't work? Sorry if could be done Um I'm not sure if it would work Uh, certainly it would have to be looked at long and hard um the anxiety I'd have about that is Uh, you know once you go down that path Uh, it gets kind of hard to reverse Uh, if people expect, um that and more and uh And and and look for ways to make the the pain continue um, even though they might not be Calling it or when you get into those terms, but that's looking effectively What about um, and that makes me think well, what about what about borrowing? Uh, is borrowing a possibility here? Can they go into the bond market and borrow for amounts to operating expenses and they could go to the National or international bond market and and borrow money Um to do what has to be done to deal with the virus here in Hawaii Is that a doable thing? Is that require is that require a bill require legislative action? Uh, or is there anybody around in the state government that can actually borrow like that? It's it's possible to go out in the bond market. Um Bond places have have tanked as well So it's going to be difficult to get money anywhere um And and I think we have to be prepared for that Uh, obviously if we're Uh If prepared to pay enough in the way of interest then Then we'll find some people who will be willing to loan us money Uh, but again, it will come at a it'll come at a price Yeah, well, probably a very high price because our our rating bond ratings not that good anyway You know, we're not in all that we were not even before this in all that good a shape in the bond market for Um, you know as a as a class a double triple a kind of borrower so anyway Of what Warren Buffett did um when uh Uh What's what's that big brokerage house in New York? Uh went down after and in the last um account Uh, Warren Basically said look, you know, I got the cash Uh, I'll lend it to you But you got to pay me 10% And they and they took it I think it was gulman sacks gulman sacks that have to do that So maybe something like that is in the wings Uh, maybe maybe somebody's actually making phone calls about it right now I think this I think there's going to be a crunch and of course it's always possible lest we forget And before we close the show that the federal government will respect David you gave declaration of an emergency and somehow Uh find some money for us and other states Um to help us through the crisis to help our fiscal policy to help us survive Um, you know in a time when The costs are so astronomically more than we ever expected So I'm I'm hoping that the federal government will come will come through Uh, we'll we have to see what congress does right now that uh, I think it's stuck Uh, the senate under mitch mcconnell hasn't voted on the house bills And uh, we may not see a result even on the initial raft of legislation that's been proposed For several days or more And that's really tragic So last question time At this point Given this crisis I'm giving all the issues we talked about Would you as governor Encourage the legislature to go back in session And somehow manage to do Legislative action to deal with things Well, I think so. Yes. Um, I would I would as much as possible Want Our government at least a quick You know put it put it its best pace forward and and uh, you know Once it's safe to do so And once the appropriate means can be devised like, you know pumpkin's calls or whatever Uh, get about its business because um You know a lot of people depend on Government to do its thing when it when it says it was going to do it Uh, and we need to uh Basically not roll over and play there. We need to Put up the inactive site Uh to save our all all of our life it was Yeah One thing to close business now It's another thing to close government down when government has to help us all survive And as powerful as the governor and all governors have become They can't do it alone. They need they need the support of the legislature for Funding and policy. Well, Tommy. I'm a chica. We find ourselves in interesting times I would like to do this again with you soon Uh, so we can find out what happened in this incredible story in which we are now immersed But in the meantime only one piece of advice time wash your hands Take care aloha