 Yes, we are back. We're live two o'clock rock Here on community matters and community does matter with Roger Epstein And he's a tax attorney of 45 years in here in Hawaii, Nay Or five of those were with the Internal Revenue Service plus 45 plus 45. Well, let me do the math on that Well, I think that's 50 J. Okay. Yeah, they heard it here on think tank 45 plus 5 and Gavin Thornton Gavin Thornton is the co-executive director of the Hawaii Apple Seed Center. That's right. Yeah, great to have you here you guys Now what's happening is we have a legislature in session and we have a bill Let's call it the Hawaii tax fairness bill and let's talk to you Gavin. What does that bill say? sure so What that bill does is it tries to even out the balance in our Hawaii's tax system? Right now Hawaii's low-income earners pay a much higher percentage of their income Towards state taxes than the folks at the highest ends of the income scale This is trying to change that balance by really doing a couple things One is updating some existing Credits that are already on the books the food credit the renters credit which hasn't been adjusted for 35 plus years so since 1981 Probably when you were break dancing And and so of course we've had massive inflation since then Seeking for the value of that credit to go from $50 to 150 We're also seeking to adopt a working families credit which would bolster the incomes of working families It's has bright broad bipartisan support across the nation based off of the federal earned income Oh, this is not limited to Hawaii Well, well this particular past package is But the working families credit that we're proposing here is based off a federal credit That's already been in existence for for many years. Yeah, that's recognized as being the most powerful tool to fight poverty And and so we're looking at adopting a state counterpart which 26 other states in the nation have already done And we need to do it here to balance out the system and then to pay for for those things and Also to help with that balance We're looking at re-instituting the tax rates that were in place on the highest earners in Hawaii from 2009 to 2015 they're changing the brackets Changing the brackets at the high end. Yes increasing the bracket the tax at the higher end Yeah, not just changing brackets the tax rate would be higher Oh, so the bracket the percentage bracket remains the same and then there'd be brackets that have a higher tax rate When you have more income. Okay First what is the Apple C? Why is the Apple C? foundation or rather Center for law and economic justice. Why is it interested in this? Sure. Well, we're Hawaii I'll see it is is really interested ensuring and ensuring that we have a Hawaii where everyone has an opportunity to achieve economic stability and success and One of the main ways that we've identified to be able to do that is by addressing some of the unfairness in our tax system We have people that are struggling to make ends meet We have the highest housing costs in the nation highest cost of living in the nation Lowest wages in the nation when you nation when you factor in the cost of living a terrible combination and and as a result of that 50% of actually 48% of families are struggling paycheck to paycheck and And and so we need to figure out a way to deal with that and and one of the best ways to deal with it Is simply stop taking money out of people's pockets through a really regressive and oppressive tax system Just gonna cost us. I mean us meaning everyone is they're gonna cost money to put this Program through well the the great thing about this particular package is that it's revenue neutral It doesn't cost the state anything now Definitely the folks at the higher end of the income Scale we'll need to step up and pay a little more But right now the people at the low end are paying such a higher percentage of their income over 13% of their income goes towards state and local taxes whereas on the high end. It's about 8% That sounds regressive to me and unfair to me You know Hawaii has the gross tax tax and you told me earlier Roger that Half of the revenue to the state comes through the gross excise tax maybe even more because of the surcharge on rail and That's regressive. Yeah, that's not fair and we've had that for a long time. This is something we need to correct Don't you think well one of the things I think I think we're in a revolution for taxes because of the new administration because We're likely to Washington in Washington. We're likely to see federal taxes go down and and One of the arguments that the Republicans always make is that well everybody should pay some tax in Hawaii Half the money that funds our government comes from a tax that People who make say 40 or 50,000 a year paying a hundred percent of their income at four and a half percent It's all spent on food on clothing on very regressive Very regressive and very all-encompassing. Yeah, so if you're making $500,000 a year You're not going to spend all that in a general excise tax manner Maybe you spend 50 maybe you spend a hundred right, but the percentage of your income That you pay the general excise tax on much higher for people in a lower bracket So when I talked to my friends who were Republican and having practiced law With the largest law firm in the state here for 45 years all my friends are That's why you're not practicing law now I'm retired I retired You found the truth. Yeah, I did and now they can all be mad at me, but the main thing is We're looking at a situation that to me is a perfect storm You're going to have the federal government who is going to cut back on you on social services And so the state's going to have to pick that up or we're going to have even more homeless people houseless people and if if the That's the federal tax goes down which is supposed to then there's going to be money freed up so to speak For the wealthier now the beauty beauty nobody likes to pay tax 50 years in the tax world I I never met a person But the truth is Unlike what Ronald Reagan said that government is the problem. It's not the answer in my mind Government is people getting together to say how do we pay for things we need to do our government? Yeah, so it's not redistribution of wealth. It's who's going to carry the freight Yeah for the services that we need to have yeah in the state including Fixing the streets and what do we do about the homeless and what do we do about the working poor in our state? So the beauty of us of a state tax is When that when the wealthier pay the state tax they get a deduction for federal purposes So in a sense the feds are giving us some of the money Through because we have the wealthy paying the so for example if a wealthy person is in the 40% bracket Let's we don't know what the new brackets will be for federal led to 40% He pays $10,000 in state taxes he gets a reduction He gets essentially a reduction of $4,000 from the federal government So in a sense the federal government paid us $4,000 this way it's been so far right. We hope that continues No, well if the tax rates federally go down to 15% that the Republicans have talked about And when somebody pays $10,000 the the federal government's only paying 1500 now not 4,000 because the brackets will change Yeah, but my point is is really if the feds say we're not giving you as much money And you raise the taxes at the highest level Then you're a sense getting something from the feds that they took away from you on the other side But what I get from you is that we had the social safety net problem in Hawaii And a lot of features to that a lot of factors a lot of reasons a lot of effects It's a major process phenomenon happening here for a long time And even before Donald Trump was elected even before this this recent election, and it would have been appropriate In the years past dealing with that to have this very same bill Right then but now we have Donald Trump now We have changes that are going to happen probably going to happen in Republican Congress to reduce tax burden of the rich I want to suggest something else that's coming along You know I as as all the years I've been in in industry 20 years ago we we changed the system that's just going to start kicking in now about pensions So pensions used to be when I retire I get 35 or 40 percent of what I make that's called a defined Benefit plan we don't have that anymore. We have 401 Kains 401k plans which are defined contribution, which means whatever you put in that's all you get and Many people I think the average across the country is like a hundred and twenty five thousand dollars So you retired age 65 people are living longer in Hawaii. We have the longest live people in the country They're gonna live for another twenty five thirty years on a hundred and twenty five thousand have enough money not gonna happen They'll be poor in their elder years and what they're gonna do is people gonna start working part-time jobs and this kind of credit Will keep them from having to take those that additional income and pay more tax Whereas the guy on the higher end Hawaii has a wonderful thing that I'm not talking about changing. We don't tax pensions It's and we shouldn't because we're gonna have more people on shorter pensions Yeah, but the people who who come here in Hawaii and if they have their the rate of their income tax raised But they've excluded all of their pensions It doesn't I'm to me that I could complain that oh Hawaii's got these really high income tax rates now So so you've got a couple of things going for you pensions are exempt. So that's that's a real credit Benefit to people on pensions including the wealthy on pensions and now you've got a Federal tax that may go down and and less distributions to the state so more need for revenue If you apply a state tax at the highest levels Those people are getting a benefit from the feds. So it's it's balancing out They're only paying essentially 60% of the additional tax and the federal governments paying the other 40% For the people who get the credit they're at the low income. So they're not in the 40% bracket They may be in a 15% bracket 20% so the credit Doesn't doesn't cost them as much in other words the rich guy is getting a Federal tax reduction The poor guy Doesn't get a federal tax increase because he probably wasn't itemizing his deductions anyway And in any event he's in a lower bracket So it really works to the state's advantage without hurting the the wealthier people as much and the wealthy people are always Already getting this huge break that most states don't do. Yeah, they're not tax pension. So it's really a confluence of things Yes, it's the way the system works here with the current unfairness. We've been evolving for a long time And it's the federal system, which is going to change. We don't know exactly how but we got the direction on that Yeah, and it's the inter-relationship of the two systems right now and you said before That this was a revolution. We are in you said I think a revolution in taxes What I get from that is and it's about time So people really pay attention to what's going on and how these three factors work and how they work together and Take and and speak on it and try to get it rational and try to get it to comport with what our What our society is doing? Yeah, and I and I think that's really true in the in the Communication the discussions about it are very unclear like if you say to somebody well, you're in a 40% bracket That doesn't mean you're paying 40% of your income. That's just on income over X dollars Yeah, I think the Fed is 350,000 and our bracket is 350,000 So unless you're making 350,000 you're not going to have additional tax cost But it doesn't if you're if you were in the 40% bracket your overall taxes may be 20% Yeah, I hope you're writing this down Yeah, but a revolution J We got to look at the way the world is in the in the 60s the federal government started picking up a lot of costs Because of the civil rights, they started taking over more Responsibility the national right and then they did it in education human services now We're gonna see a cutback and so it's it's it's states rights. Yeah, and we've been talking about this We've been talking about this for the last few weeks about how this cut back these changes that Donald Trump has promised us and Regrettably following through on required the state to be resilient to figure out a better path for itself Right, and and I and on that very point. I want to take a short break We're gonna come back when I talk about this path this path in the legislature and what you're doing Gavin What you're doing Roger and the hearings and the likelihood of success and who is helping you I want to know about the politics right after this break. You're watching think tech Hawaii Offering lifelong learning from passionate hosts and fascinating guests ready to explore and explain Hawaii's place in the 21st century Great content for Hawaii from think tech Aloha, my name is Reg Baker, and I'm the host of business in Hawaii with Reg Baker We broadcast live every Thursday at 2 o'clock We highlight businesses and individuals that are successful in Hawaii and we learn their secrets to their success I hope you can join us and listen in because we always have a pack of information on Successful stories in Hawaii. Aloha Hello, I'm Marianne Sasaki. Welcome to think tech Hawaii where some of the most interesting conversations in Honolulu go on I have a show on Wednesdays from one to two called life in the law where we discuss legal issues Politics governmental topics and a whole host of issues. I hope you'll join me back We're live. We're here with Gavin Thornton of the Apple seed Center for law and economic justice and Roger Epstein Who is a tax attorney of many years? And we're talking about SB 648 Which we've described as a part of the tax revolution and to clarify and resolve and make it more fair For the people in Hawaii name, especially those who need help from the social safety net So it's in the legislature and you along with the Hawaii tax What's a fairness? initiative Are our shepherding this this bill SB 648 through how's it going Gavin? surprisingly well given that it's tax and such a dry issue, you know taxes aren't something that People typically get fired up about except to say that we need less of them and and So it's going really well this Hawaii tag tax fairness initiative Is is a pretty broad coalition of groups that are interested in how low and moderate income People are struggling in Hawaii and what we can do to address that So we just had our first hearing on the the first bill out of the chute Committee was that that was in front of Senate's means finance So it was a means yeah ways and means And and then we have a the companion bill is up for hearing in front of house house finance tomorrow At the the Senate hearing which I wasn't able to attend but I know that Roger was I heard that it took about 10 minutes for them to read through more than that There were hundreds of people that testified in favor of it and and they weren't there She just called off all the names Asking anybody if they want to come up and and and speak that's impressive. Well, that's impressive file testimony It took 10 15 minutes to read everybody's popular bill Yeah, sure and everyone was in favor of it with very few maybe one or two some of the state organizations a tax foundation as well as the Department of Taxation had some technical issues with it and but overwhelmingly people were in favor of it now Now that's at the beginning of the process as you well know and I think people are going to be very concerned about raising tax rates. That's a big concern, but You know, I go back to a period when when I first started as an internal revenue agent in 1967 the tax rate Federally had just come down from 90 percent to 70 percent the good old days. I'm yeah I'm telling you but people were alive. You know didn't it didn't ruin business I mean those were the heydays in the 60s and 70s and in the 50s after World War two things were going really well and so When Reagan came in in 35 in 1986 he put in a new tax 1986 tax act saying we're going to pay 35 percent We're going to eliminate all the deductions. Everybody's going to pay 35 percent Supply side economics. We're going to have more revenue because we reduced the tax though. Well, you see where we are. We're $20 trillion in debt and We've got one percent of the the cult the country owning more than half of the all the wealth And so yeah, it's had it's had a very bad effect. It doesn't work and what we're going to hear from the Republicans are more of the same They don't seem to care about the wealth gap And so I think I think this is a democratic state 65 percent of the people voted for Hillary Clinton And more more are registered Democrats. So we have to decide What do we believe do we believe it's every person for themselves or is the state going to turn and say It's time for us to step up because the federal won't do it this is a very as I explained before a very sensible way because the feds actually pays some of the cost and It's not that it's not that Hawaii has a such a heavy income tax because they're already giving pensioners a huge break and so To me somebody's not burdensome. No, I think it's fair and it's and and again you can make names Redistributing the wealth. We're not redistributing. We're who bear who should bear the cost Of government. We got to have government. It costs money Who should pay the guys who are just barely putting food on the table or people who have a lot of discretionary income And and and we're not talking about a Tax rate of 90 percent here We're talking about tax rates that apply to people that are pretty well off joint filers that have a taxable income of $300,000 or more not that many of them. There's not that many So this affects we think about the the top five percent and primarily the top one percent Yeah So $300,000 of taxable income is a lot more actual income Roger could probably explain that more I was looking at Mitt Romney's tax return, you know, I think he had about a quarter of his gross income Off of you know deducted from his taxable income So it's people that are making a lot and and the increase is is Significant, but it's not severe. So for example a joint filer with the taxable income of $350,000 would pay 375 more dollars in taxes As you go up from there, not really it's not gonna kill you. No, yeah Well, how much but how much have you figured out how much it's gonna benefit the the state treasury? so With the whole package not at all because it's gonna go back to the low earners It's gonna go back so it's actually as you said before it's neutral revenue neutral correct a total is how What's the total revenue raise? So so people are still trying to figure that out? Last year when they were discussing the the revenue raised figures were around 48 million dollars We work closely with the Institute for Taxation and Economic Policy in DC by their analysis This would raise as much as 70 plus million dollars So a significant amount it could it could pay for even more than These this tax relief for the low-income folks that we're talking about the state said 42 million But but just look at it this way. I mean it's almost I Don't want to say laughable, but I I'm making $350,000 a year and you asked me to kick in another $375 so somebody who's working. We're not talking about people in the street somebody who's working hard to Can put food on the table for his family for three hundred and seventy five dollars This is why when you look at how out of balance we've become Another example of it that that's bothered me for years when I first got in the tax business If you've got a dividend you got a hundred and fifty dollar deduction for your dividend hundred fifty dollars Okay, today You pay fifteen percent on your dividends Fifteen way cheaper than a margarine cheaper the marginal rate at a hundred thousand dollars of income say there's two people working And they put there, you know, they got a family. They're making a hundred thousand dollars their marginal rate is already 20% federal twenty twenty five maybe twenty eight percent federal So this is a benefit for people with dividends, of course So so our law favors the guys sitting there clipping coupons Against people who are out working. It's really unfair and and and not only that There's a there's a so security tax Which and Medicare so it's another 12% that you pay on your gross income no deductions And so what are we thinking of and then the Republicans and this is I'm really Out in the open that I think the Republican philosophy is misguided and it's taken us down a bad path And now that they're in control of everything is liable to be worse So I think we have to really step up and think about this as a as a state of aloha Yeah We have to be a leader we have to be a leader We always were leaders years ago and now, you know, Dan in no way is not here And and we don't have some of those elder people some people are gonna have to step up in the legislature Let's let's take a moment to give credit for the people in the legislature who are championing and supporting this bill sure So Miley Shimabukuro in the Senate is the the lead sponsor on the the Senate bill and then Representative Johansson on the House side You know representative Johansson's actually someone that's maybe as excited about tax as Roger is Which is pretty rare pretty My colleague And and so it's really good to see that in the legislature and Jay, let's let's let's say this Legislature has a very difficult job. This is a huge problem. Nobody wants to raise taxes Nobody if you say I voted to raise taxes. It's like well here's that's a strike against you right there But it's this is a revolution. We have to look what are we gonna do? How many more people do we want to see not pay their rent have kids? Not eating proper all this is gonna come back to me the people. This is we the people Yeah, we have to pay attention to the taxes. We have to rationalize them We have to make them fit to our society. We're almost out of time Gavin Can you close well talk to camera one there? Those are the people and tell them what you want to leave them with Just the importance of an issue that's as dry as taxes in In the lives of everyday people This is a critical issue. It's affecting people every time they go to the store And we need to to change that balance to give people a real fighting chance to make ends meet And Roger 30 seconds 30 seconds I agree. This is we're out of balance. That's all we're out of balance. We're gonna get more out We're gonna get more out of balance. It's not healthy for the rich or the poor This is that to me is just a start of what we're gonna have to think about It's a very almost a no-brainer to me But I really have enormous respect for the people of the legislature gonna have to make these hard decisions But I think it's at the beginning and more to come about how we have a society In in an era where the United States Generally is coming down and other people are coming up and we we have to make those hard decisions for ourselves You guys have to come back, you know, you have to come back and tell us how the bill does You have to come back and tell us how you really feel especially you Roger We need to know how you really and finally you have to come back so we can discuss Donald Trump's tax returns Because sooner or later we'll be able to see them. You think we're gonna get done