 Well, aloha everybody and welcome to Hawaii together on the think-tech Hawaii broadcast network I'm Kili Akin a president of the grassroots Institute Well, is your pocketbook getting more and more empty the cost of everything in Hawaii is going up And if you live in the city and County of Honolulu on the island of Oahu the cost of government is going up We're in the midst of a coronavirus pandemic crisis response right now And that's driving costs up in addition to that prior to the coronavirus crisis Our cost of government was going up. This is not to mention of course the cost of the Honolulu rail project Well, if you're a lawmaker in Honolulu, you're tempted to look at the taxpayers to solve the problem of rising costs and So on their minds now is the issue of whether or not taxes are going to rise in Honolulu in this coming fall I've got an expert today who's a dear friend of the grassroots Institute who will give us some answers to this He probably is the most well-versed Analyst of the tax situation in Honolulu and Hawaii my good friend Tom Yamachika President of the Tax Foundation of Hawaii, but before I bring him on I just want to say I appreciate the work that he does It's tremendous work in forming lawmakers as well as the general public Tom. Thanks for being with us today Appreciate you joining us on Hawaii together. Oh and thanks for having me on the show We've got a lot of interesting things to talk about today Well, absolutely, but before we do I'd like you just to take a moment to let our audience know a little bit about the tax foundation of Hawaii Sure, we're a taxpayer watchdog organization. We follow mostly State legislation as it's going through the process But we also get involved that to a lesser extent on city or county enactments As long as it has something to do with tax or public finance We can be on it right and We're just proud to say that Tom Yamachika is a great partner of ours at the grassroots Institute of Hawaii and Together we work on tax issues here in the state and in the city and county now As I mentioned at the beginning the Honolulu City County City Council is considering adding a new tier to its property tax structure And that's going to bring into a question whether or not it's a good idea to tax the rich I'm going to ask Tom a little bit about that later on at the same time The county is going to decide whether to adopt a newly allowed county level transient Accommodation tax and that would be up to three percentage points above the existing State tax or TAT tax which is currently 10.25 percent. That's a huge increase Now is the city and county going to go for the entire three percent or just part of it? We'll hear from Tom a little bit about that and should the over budget and behind the schedule behind schedule Honolulu rapid Transit project the rail get a portion of the revenues. That's a hot issue as well Well, I'm so glad Tom is here because I'm going to throw him some key Questions that will help illuminate where we are in terms of taxes ready to go Tom. Oh, sure Well here, let me throw this out to you You know earlier in the year the state legislature also considered multiple tax hikes and we worked hard to stop some of those And that was despite the fact that increasing taxes during a recession is generally not a good idea Now the city council is looking at a few tax proposals One of them bill 20 would rework the property tax tier system. Can you explain what that would mean for Honolulu homeowners? sure What what you mean by a tier system is that for certain classes of property? There are bands like the income tax where the if you have Property up to a certain amount of value Then you get a certain tax rate If you exceed that bad and go into another band, so right now we have two bands Then you go into another tax rate So right now what we've got in Honolulu is something called residential a and what residential a is is if You have a property that's residential, but it's not eligible for the home exemption and It's valued at a million dollars or more You get a higher rate called residential a and that that's where the tier structure comes in because The current rate for residential Is three dollars and fifty cents per thousand so you know point? Point three five percent Residential a is four dollars and fifty cents per thousand For the first a million dollars, but if it's more than a million dollars You go up to ten dollars and fifty cents per thousand Well, that's something you know bill twenty which they're considering would add a new tier of taxation for property That is valued over five million dollars Who would this really affect ultimately in the new tax structure? well at this point we really don't know because There there aren't numbers attached to the new rates That's something that's set annually by you know the budget ordinance so it just kind of gives the City Council more wiggle room to You know to to give you know very high tax rates to the most valuable Tracks of property now. I what I wanted to mention is that We're not the first county to try this The big the big islanders already have two tiers Kauai doesn't Maui is three So they already have what is proposed in bill 20 so They not only have Three tiers for owner or non-runor occupied like residential a They have three tiers for owner occupied and they have three tiers for short-term rental Which is a different classification and one that's taxed much more heavily at that What is their experience with this has this been ultimately beneficial to the taxpayers has it been beneficial to the counties? I think the experience is that the counties have gotten some more money out of it, so Obviously, they're not complaining but Over and above that I'm really don't I really don't know Well back to Honolulu bill 20 also raises the limit for properties that fit under our tier a From a million dollars to 1.3 million dollars now. Is this a warranted tax increase or is this overdue? well You know, I think It's good to move the thresholds every once in a while to keep pace with inflation Do you think it should be greater Tom is it enough I Don't know. I mean that's that's kind of more of a policy and economic decision the You know the part that I'm worried about And and you know it kind of dovetails with another question that you have Maybe we got to go to that now and that is what happens when you You know put the screws the rich too much And the answer and the answer basically is They got on a plane Okay, there's a there is Not only anecdotal evidence saying this but but there's also empirical evidence There was a study that came out in 2019 By a trio of economists and what they tried to do is they tried to quantify the movements of the The Forbes 400 which is the 400 most wealthy people in the United States Okay through, you know various permutations of estate tax They were you know primarily looking at estate tax Because that's you know a Tax that hits the wealthy and tries to hit the wealthy exclusively And what they found kind of surprisingly is that If you add an estate tax to most of the states You gain revenue But if you add it to a few of them they'll actually lose money Because of effects caused by these these wealthy people saying well I've had it I'm moving out and and when they move out They take with them income tax and sales tax Because because they're not in the state to spend you know money on goods and services anymore. There's someplace else and Guess what Hawaii was one of those was one of the states that that was past the inflection point We would lose money if we added an estate tax. That's what they found so My point for that is That there is a point at which you squeeze these people too hard and They say heck with this. I'm out of here So what you're saying Tom is that if we create a new tier of taxation for a high-valued property Claiming that will only be taxing the rich in order to help the poor that that's actually counterproductive We actually are going to be killing the goose that lays the golden eggs so to speak speak We're going to be sending away the very Tax base that we're looking to in order to provide taxation. Yeah, no that there's there's definitely a risk of that I mean it all of this of course is you know predictive science. It's you know Whose crystal ball is better? But there is a risk and that's that's all I'm saying there's a risk that this is going to happen that You're going to shoot the golden goose And you know the goose will fly somewhere else And and what do you have left? That's that's kind of the problem You know what concerns me is that many policy makers and many individuals in the public are not Necessarily looking at this from the empirical side from the data side, which you talk about They're looking at it from the ideology side in in terms of What seems to be the right moral value to follow? The rich are rich that they already have their money. We have got we have so many poor here We need to be Robin Hood take from the rich and and give to the poor and and so you have strong public sentiment Sometimes for this kind of policy What what are your thoughts about that when it enters the public policy realm? Well, you know policy is one thing, but you know people have to be realistic You know if there is a risk that we're actually going to lose money by doing this I Don't want us to be the you know the state that finds out this theory is true Because you do you do that you learn a lesson the hard way. I Don't want us to be you know in that position because you know The rest of us poor guys who you know have to bear the You know the brunt of the government services that you know the cost of the government services new taxpayers like you and me Are going to wind up eating it if If there's any miscalculation that's that's done by the legislature or other lawmakers on that score Let's narrow down a bit in terms of a heavily progressive tax structure What is that impact upon businesses and and the potential for businesses owned by small business owners to leave the state I Yeah, I think that's one of the variables that was factored into the study Most of these so-called rich people aren't just lying around You know you're sitting on a pile of money day after day They have done something to get it a lot of them are entrepreneurs a lot of them run businesses And if they leave the state Parts of parts of the business are going to go with them naturally One of the interesting things I've noted in numerous conversations Since both the state and the counties have been considering increasing the taxing of the rich Is this phenomenon there are wealthy people who love Hawaii who consider Hawaii their home But who own more than one home? They may own a home in Hawaii and also in Nevada And they are looking at strategies for moving their capital and their businesses out of Hawaii While being able to find ways to spend a maximum number of days here in their quote-unquote second home What are your thoughts about that and that's that impact on our economy? Well, I mean we know that people are doing this we've seen instances of this Nevada is a Very attractive destination because it has no personal income tax they make enough off of gaming revenue so that They have done that for their citizens and and they've they've attracted a few from here So the the danger is real we have seen instances of it and The the question is how you know to what degree is it going to happen? I mean You know some people And and this this is the part that's very hard to quantify are going to say oh You know, I love Hawaii. It was born and raised here. I'm not going to leave no matter what even if they tax me to death um but More of more of them won't I mean they they won't have that much um In elasticity as the economists say Very good. Well, well, Tom, we're going to take a quick break now and when we come back I'm going to ask you a bit about the county TAT Uh increase which could be as much as three percent But before that, let me mention to our viewers That we have a project at the grassroot institute called why we left Hawaii story after story of individuals businesses and others Who have left Hawaii for some of the reasons we talked about today and you can access those stories at grassroot institute dot org Don't go away. We'll be right back on think tech. Hawaii's Hawaii together. I'm Kay Lee Ikeena Stay right there clean energy on think tech Hawaii Hawaii the state of clean energy is about following the many clean energy initiatives in Hawaii Hawaii the state of clean energy appears weekly on think tech Hawaii at 4 p.m. On wednesday Thank you so much for watching our show. We'll see you then Aloha Welcome back and thanks for staying around. I'm Kay Lee Ikeena and you're watching Hawaii together on think tech hawaii My guest today is Tom Yamachika and we're talking about potential tax increases for Honolulu county And also for the the neighbor islands, you know a tom Another new potential tax Is the county transient accommodation tax and that could be adding up to three percent To the tax burden Many critics have pointed out that if you combine that this the existing state Transient accommodation tax with it It will give Hawaii the highest tourism taxes in the country. What are your thoughts about that? And what would the impact be? well, sure and not only that but You're you're you're perhaps maybe forgetting one thing if you're going to stay at a At a hotel here, you know, if you're locally if you're a tourist, whatever You have you're going to have three things to worry about one is the state TAT Which is 10 and a quarter percent And after this past legislative sessions of veto override The state's going to keep all of it Whereas before they were they were giving a 103 million every year to the counties Second there's the county tax, which was just authorized by this new with this new legislation Uh, a lot of the counties are still figuring out what to do and and how to how to go about doing it And third is we have this ubiquitous tax called the general excise tax that applies to hotel rooms, too There you go. That was the third shoe. I forgot about So so so somebody who is staying in a hotel Is going to find lots of tax on the bill Because we have 10 and a quarter percent plus 4.7 plus another possible three So that's a lot of tax close to it's close to 20 percent um and uh Whether that's going to affect demand. I mean it should probably will We just don't know how much right now. The economy has been bouncing back after the You know the the drop in COVID-19 cases around the world But now the delta variant is kind of getting in there and causing the cases to rise again So our governor goes up on on the world stage and says, you know a tourist stay away Please We don't want you At least for the time being Right and uh I'd love to chat a little bit more about that subject But that's one for another day in terms of the government government's role In terms of with regard to tourism But just going back to the point you're making at the heavy rise in taxation of tourists Even let me throw this out to you Even if that does not curtail tourists coming to hawaii In what way may it curtail their spending behaviors in stores restaurants and abc stores and so forth throughout the island Well, I mean if they're if they're not here, they're not spending money Right, but if for those who do come how does the increase in taxes affect their spending and behaviors Well, well, you know, like I said, this is a transient accommodations tax only so It may affect the length of their stay and if it affects the lengths of their stay It depends in me it'll affect how much money they're spending here Right And this is where I like to think about the ripple effect in terms of Money that goes that doesn't go to stores doesn't go to employees doesn't get on the table and so forth And so we have this residual impact upon the economy and the impact upon the consumer here here in hawaii Now, um, should we be concerned tom that there might be another transient accommodations tax this term Or an increase beyond what we were aware of We we've we've hit the thing a lot already. I mean You got to remember this was uh, this was a five percent tax when it was originally enacted Now it's it's it's more than double Uh, and it's was supposed to be temporary. It was supposed to fund the convention center and then drop off soon after that uh But the but lawmakers kind of liked having the money around so uh, it got It got extended and extended and extended and and then people found more uses for it. So more your marks were put on it and uh, you know, it It kept looking like a Christmas tree because there were so many ornaments saying, you know, this money goes here. This money goes there and It was just kind of a little budget Onto itself You know, as you you say that Uh, it comes to mind that There appears to be quite a bit of competition for the revenues from the county t at In particular the Honolulu rail is hoping to lay claim to the t at revenues To overcome their budget shortfalls. Do you think the rail should get a slice of the t at? Uh, well, I I don't know If they should or not, but the but I think the practical fact is they're going to Okay, um, hi, it's a it's a cost of Honolulu county government And if we can't get the feds on board if we can't get the state on board to bill, you know to bail out more of it uh, guess who's left the the county and um, Guess what governments don't pay taxes. They impose taxes, but they don't pay taxes So guess who guess who comes up footing the bill the taxpayers. That's all of us and um, you know There there are so many, uh different Ways and devices that the government takes our money This is just one of them But uh, it just keeps on going and going and going But let's go back to the g et and in particular the g et surcharge Set aside that already goes to rail. Well, what do you think is going to happen there? It's going to stay in place. I mean, there's there's been no, um, You know movement to you know kill that off You know that the um situation by which you know, the county's got control of the 3% surcharge I I I think was uh, you know travesty in more ways than one Um, not not only because it was kind of foisted upon the the counties of the last minute But it's it's it's very different from the other taxes the state taxes that the counties are administering because uh The counties didn't want to get the authority for 3% they opposed it um, but uh, but they got it anyway and Uh worse than that It came with Uh, no assistance whatsoever from the state and and let me let me explain what what that is you know for the County surcharge on the g et The state collects the g et And they collect the surcharge on top of it Uh, so the kind of the county doesn't have to work right the state just writes them a check Uh, when coming up with this 3% surcharge bill lawmakers deleted all those provisions So so basically they get the opportunity to impose up to a 3% t et on their own But they have to come up with all the infrastructure to do to do it So they gotta they gotta hire their tax collectors. They have to train them. They have to you know get them out in the field um Uh, it's something that uh, you know the governor and several Uh county council said was like terribly inefficient, which which it is Uh, but that's what they got You know, we're winding down now tom Um, what what what do you think the t et revenues really should be used for? Now that they're available Would one of those usages be to curtail some of the externalities affecting the tourism industry Well, yeah, that's that's kind of what it was originally intended for but But let's be real um taxes go into a A county government. Um, and they're kind of mixed with everything else. So we really have no control over, you know, um The Or really should have no control over what a particular dollar is collected by a particular tax is used for It's all you know part of one big melting pot um, and of course, it's then the Uh, the legislature or the county council's responsibility to Make sure that the money is used wisely and um Uh There was there were indications that at least for the Honolulu rail project to uh Some of these financial controls were avoided Really run in the process and now there's kind of more structure around it to make sure that Uh, there is there is more transparency in accountability, which I think is good Last thought before I let you go. Um, how do you think Honolulu should handle the county TAT issue? Any good word of advice? Well, like I said, they should, um, you know Uh, keep the whole picture in mind. Uh It's it was once observed, um You know by by some, you know wise person in britain, uh that The art of taxation is like plucking a goose Uh, you wanted to maximize the number of feathers you get And minimize the hissing And the you know And the goose flying away as well. So, uh, that's really what the science is all about. It's a you know, kind of treading a delicate balance um, so We need to wish the The government's good luck in their endeavors because Are they're going to need it? This has been great insight you provided today appreciate your work at the tax foundation of hawaii And thank you for being with us here at the grassroot institute on today's hawaii together on the think tech hawaii broadcast network Appreciate it much. Aloha to you tom and to our viewers