 back to ThinkTech. I'm Jay Fidel. It's a Thursday morning. And that means us talking tax with Tom Yamachika. And today we're talking about a tax frenzy at the legislature. I mean the state legislature. I do not mean the Congress. They have their own kind of frenzy. And one has to pull one's head out of what's happening in Congress in the impeachment in order to focus on the local legislature. But we need to do that too, in the hope the country will survive. Anyway, so the tax, the tax is having a frenzy this session because we have a problem, Houston, on balancing the budget. So Tom, you've been following this. We've been talking about it. What's the state of the frenzy over tax? You know, you would never know that we have an economic problem from the looks of some of the bills that are being debated and passed. There are credit bills aplenty. There are tax exemption bills aplenty. There are, you know, of course, bills for new and more dangerous things. There are some really, really innovative bills. And we'll talk about some of those. But I am personally following about 200 bills right now. And these are just the bills that have gotten a hearing. There are a lot of probably fringe content bills that will never be heard. They won't see the light of day. They've still been introduced. And we have, you know, brief descriptions of those on our website. But even for the ones that have, you know, had a hearing and supposedly have some legs, I have eight pages full of notes about those bills. I haven't counted them, but they're probably like 150 or 200 bills. Well, we could spend a time going through all of them, but I don't think that's going to work out. I think we have to identify the ones that are most interesting and threatening and possibly useful. Can you talk about those? A handful of them anyway? Sure. One of the bills that's being considered by the Senate is what we call the Maintenance of Effort Bill. This is Senate Bill 815. And what that is, is the bill is designed to keep the funding level for the Department of Education the same for year to year. So what it says is that if, for any reason, the, well, not any reason, there are exemption provisions in it, but for, in the most part, if the appropriate amount to the Department of Education goes down, then the difference is immediately sequestered from the general excise tax collections and put into a stabilization fund for the Department of Education, which then can use it for any budgeted program period. Wow, that's pretty aggressive, isn't it? It is aggressive. Not only that, but I would imagine that the bill was drafted by a nonlawyer because there are all kinds of technical problems with the bill. For example, if the legislature decides to raise the appropriation to the Department of Education, and that creates a difference too, and that's sequestered from the general excise tax and put into the stabilization fund, even though that's not what the bill is designed for. The bill is designed to do a backstop in case the appropriation goes down. But it works in reverse too, and I'm not really sure the drafters intended that. Well, it's interesting because it suggests that the drafter has no confidence in the legislature to maintain an appropriate level of funding. It also, you know, to me, that we have a bill or a combination of bills pending to scoop out and repeal these special funds. This is creating another one, isn't it? You look at every other bill in the legislature this year seems to create a special fund. The reason that people are doing this is because they're swayed by the argument that a special fund will create a dedicated funding source for this program or that program. But the reality is, one legislature can't bind the next. So two years from now or one year from now or, you know, next, you know, whatever it is, a law can be passed to repeal the maintenance of effort provisions even if they do pass. It all sounds very inconsistent with the notion of taking the money out of the existing special funds. And now people want to create new special funds. So which way are we going? Which one time is better fiscal policy? It's, I think the far better fiscal policy is to get rid of the special funds. You have to let the legislature do its appropriation business. And it does that by considering all of the revenues and all of the expenses prioritizing them for the good of the state and funding it accordingly. But this, you know, very much frightens people in certain constituencies because they think, oh my God, the legislature is going to defund us or they're going to drop our budget. So we can't have this happen. We have to do something about it. So they want a pot of money special fund that presumably is immune from legislative oversight so they can spend their money the way they want it even if the legislature doesn't agree with them. You can quote me, Tom, but if you want to create a special fund with a pot of money that doesn't have to be spent right now, you're taking it out of somebody else's hide. And so you're creating a priority. Furthermore, you're spending money at a time, money that doesn't go anywhere right now at a time when we are in desperate straits over the budget. Yeah, and one of the things that I've been talking about, you know, over the past weeks and months is that we have excess money sitting around in some of these special funds. So my point is why do we want to raise taxes or why do we want to do furloughs if we can use this money that's been sitting around idle to better effect? We've got to repurpose this stuff. If the money isn't doing its intended job, well, let's make it work for the people. I want to talk about some more of these bills, but I'd like to interject one point of discussion. And that is, if we are in desperate straits, which I believe we are and I believe you believe that too, then what are the priorities that the legislature should be attending to? What are the top three or four things that it must do in order to save the state from the problems of an unbalanced budget? Well, that's an interesting question because education is one of our top needs. I think everybody can agree upon that. The degree to which that's being implemented, you know, that's open to debate, but certainly it is one of our top priorities. Tourism is our number one economic driver, so we have to support that. We have to deal with environmental threats like invasive species, sea level rise, you know, that kind of thing. There are infrastructure needs that we have in our education system, both in higher and lower education. UH and the schools are falling apart. We've got to fix that. If we, you know, for too long, we have deferred the maintenance and now it's coming back to bite us. So we're spending many tens of millions on a new stadium. Somehow that doesn't really doesn't really calculate. 350 million. Yeah. I mean, that's that's kind of the price tag that's on it right now. That's really the wrong time to run. And, and, you know, one of the one of the provisions is going to sound very familiar to you. It's a proposed constitutional amendment to remove the exclusivity of the counties over the real property tax. Now, what that would mean is that the state could impose a real property tax like it did once upon a time. But the legislators have tried to sweeten the pot by by saying it goes hand in hand with another bill or couple of bills. And the idea for that for those bills is to phase out the individual income tax. So it goes to zero in 2030. And, you know, I did some calculations. And it turns out that the individual income tax is one of our one of our top producers. It provides what two and a half billion dollars to run a government. And if you want to replace that with property tax what you would have to assess on all properties is like 7% which is $70 per thousand of valuation right now people are paying between three and $15 three three being residential and $15 being commercial. It's just kind of varies by county and and by by property classification but that's kind of around the range that you pay. If I do that, if the state does that, I'm not saying it's a good idea. I don't think it's a good idea at all but then it has an effect on the real estate market doesn't it has an effect on foreign investment coming in buying Hawaii property. More more immediately. It has it has an effect on the county budgets. Absolutely. If you add, like, you know, if the if the county is charging, you know, $15 per per per thousand and the state adds another 70. And the homeowner can't pay both. You know who's going to get what. So so so the counties are are, you know, they're going nuts, because this is threatening their their number one financing system. I don't mean that they're at the at the at the call of the state. In other words, at the mercy of the state. They'll have to get there worried about that's that's why that's why the counties are opposing this particular measure very very fiercely. Yeah, they should be. The state may not be reliable in terms of providing them with the necessary funding. All kinds of inequities coming out of that. But you know, this goes back to a complaint that I make to you all the time. I said, why do these legislators take any bill that comes down the pike on state issues and drop it in the hopper. So we all have to chase around. They all have to chase around dealing with cockamamie bills. Those that are obviously of no value. And that are trouble. Why don't they just say no. Well, because they have constituents who are depending on them. Like for the constitutional amendment bill. The HSTA is in strong, strong support. They want their teachers to be properly funded and get raises and they think this is the way to solve the problem. I don't think it is, but they think it is and that's why they're pushing this bill. So as a practical matter, it's going to keep moving forward. The question becomes whether it's going to survive the last leg. But I don't, I don't actually, I don't believe the legislature for that matter. The, what do you want to call it, the constituent public or the constituent unions don't appreciate that we have a fiscal crisis center. Furthermore, I noticed that in your list of priorities, you did not mention the incentivization of entrepreneurship of technology of new businesses. So year after year, we may get some discussion of it. We never actually get bills, at least not these days that would pretend to incentivize businesses for young people and like to build a better economy. We still have this notion of going back tourism. Well, that's what we have now. At least we have some mature infrastructure for tourism. And this time we tried to, you know, give a shot in the arm to the tech industry. We really didn't know what we were doing. And, and the incentive program collapsed around us, not, you know, because of the good actors, but because of the bad actors. The legislature in the end killed it before the sunset, talking about Act 221. But there was no replacement. It's been more than 10 years since it died in an early and intentional sunset. And so we have nothing to replace it. I find it interesting how short our memories are, but also interesting that it's not in the priorities, not in the list you gave and not in the list that any legislator would give right now. There's no champion to try to incentivize young people to make businesses or even to stay here. And I don't think the legislature realizes how important that is. Yeah, certainly you would need an organization like the Chamber of Commerce to kind of spearhead advocacy around, you know, around that kind of thing. But I think you have to kind of define the universe a little bit more tightly so people know what to focus on. Just describing it as entrepreneurship. You know, sounds kind of vague and you know, at least in these times with resources being as scarce as they are. You know, it sounds like betting on, you know, betting on a long shot. Well, you know, that's the same argument that was, that was the same argument was made around 221. We don't have the money to spend on a long shot. So we're not going to spend anything. And we're not going to try to refine it. We're not going to try to focus it. We're not going to try to, you know, be smarter about it. We just dropped the whole idea. And that's what happened. And I don't think they realize that the way you improve the tax base is you have to improve the economy in general. And we're really not, you know, as far as I can see we're not doing that. Yeah, I mean, certainly one of the things that we've been saying all along is that you need to take care of the economic engine. That's, you know, that's where the tax money comes from. If people don't do business, there's no tax. And if there's no tax, there's no revenue. So, you know, you look at all of our major tax types, they're based on business of some kind. General excise provides half of our general fund budget. It's a business privilege tax. The individual income tax is driven by withholding on wage earners. So if there's no business, there's no withholding and there's no tax. And, you know, every single tax type, other than those two, when put together doesn't generate, you know, as much as the individual income tax. So, you know, that's kind of how our tax structure is. Well, do you have some more bills you want to mention? Sure. The concept of a carbon tax keeps coming up. And this year is no exception. House Bill 1319 changes the barrel tax into a carbon tax and sets it at a price of $40 per metric ton in 2022, freezing up to $8 per metric ton in 2032. And what that would do is that would add, when you, when you, you know, get down to like cents per gallon. So you can understand if you go to the pump, you want to fill up your tank. It would add 54 cents per gallon at the end of its implementation. And this is just tax. That's a lot. Just tax. So we're already paying, you know, lots of money per gallon already. And this is going to be a whole lot more. Some people think the investment's worth it. More power to them. We just need to have a good debate on, on what's, you know, what's good and what's not good social policy. But that's, but that's out there. I mean, and it's, I think it's going to be a shock for, for people who have to drive for their business. I'm talking trucking companies, for example. I'm talking traveling sales people. I'm talking about, you know, pretty much anybody who, who relies on wheels to get, you know, to get around in their, in their chosen occupation. Where are these, where are these bills coming from? Another digression, if you don't mind. Are they coming from the governor? He got a package. Is he got a solution for us? Is he stepping up and saying, look, I know we got a crisis, a fiscal crisis. You can't balance the budget. Here's my solution. Here are some bills, administration bills. We're getting any bills from him. We're getting bills from him. But none that I would characterize as economic leadership. He's also allowing departments to testify against each other if they, if they, if they so choose, which, which I think is a very interesting. I mean, when, when I was working for government, which is in the mid 1990s, and, you know, why he and Kaitana were the governor's agencies were not allowed to testify against each other. They would have to kind of like go to the governor's office and kind of hash out what, what's what was best and what was in line with the governor's priorities. But here, it's kind of more like a free for all. And that's why, you know, I'm, that's one reason why I named this, this, this talking tax segment, you know, the frenzy at the legislature because that's kind of what it is. Well, it sounds very inefficient to me. I, I take it from what you're saying that you believe it's a better policy to hash it out in the governor's office and let him hash it out in committee and neutralize each other that way. Right. I mean, I think it's better for everybody. If, you know, if the governor comes up with, Hey, here is this long term vision that I have. Here are the steps that are going to be required to get there. Let's do it. Yeah, that's certainly would be better. The second best would be that you had a few legislators who spent the time to understand fiscal policy. And who came up with their bills, such as you shouldn't say, as you see in Congress today, because you don't see anything much. But that's that she used to see in Congress where some let's later would step up and say, here's how we're going to address this problem. I am writing me and my staff. We're writing a bill and we're submitting it under my name, and I'm going to try to lead the effort on this bill. You see that in these tax bills here in this session. Not at all. Not at all. I have I have an entire page of bills that were sponsored by the administration looks like this. Most of them are not substantive. The ones sponsored by tax are not substantive for the most part. They kind of chip away at various administrative problems, you know, which is which is fine. They can do that. The finance department, which which I think is normally taking the lead on economic measures. What are they doing. They are suspending and a required contributions to the employer Union trust fund. Okay, we can't make the required payment. So let's let's not do it for a couple of years. And then we have the official funds, which I think is a good idea if there's if there's balances lying around this rate and and repurpose the monies. We suspend or have a distribution of the TAT to the counties. And that one is questionable, because then, you know, then the counties are hurting. They have to buy by fiat, hasn't it. Yeah. By emergency proclamation, the governor suspended all of that stuff going to the counties in May. And I'm going to codify that. You want to codify that for a long term. Well, yeah, I mean, the bill from budget and finance would would have the distribution as opposed to stop it entirely like it is now. Tax office, the tax office putting bills in. They have lots. A lot of mostly technical amendments. There is one that would affect the transient accommodations tax, which nobody's paying right now because there's because our tourism isn't in the toilet. But what it would do is it would add a feature to the transient accommodations tax. So that would require personal guarantees, whether you whether you know it or not. So if you're a responsible person in a company and your company incurs TAT liability and it's not paid, then they go after your house. Is that good fiscal policy? I had argued against it when it was being debated on the general excise tax side. You know, it makes sense for things like trust fund taxes, like for like if you're an employer and you tell the government you're paying, you know, a certain amount to an employee for withheld tax. And you don't pay the tax over. Okay, the employees getting credit for it. Whether or not the taxes paid to the government, but but you've basically stolen money from the government by not paying it over. So it wasn't your tax, it was the employees tax, right? In that kind of situation, I can see going after the person individually, you know, because there was some stealing going on. But the trust fund concept really doesn't apply to GE tax or TA or anything like it. My immediate reaction is if you start assigning personal liability to corporate obligations, you're piercing the corporate veil, and you're piercing the investor veil. And what we need is public confidence in making investments, taking risks in starting new businesses and bringing investment capital and using your own capital for investment capital to generate more economic productivity for the tax base is better, higher, more robust, and then you get more taxes. But if you start assigning personal liability to what has been a corporate liability, you're discouraging people from taking risks and starting business. I know you're going to agree. If I wanted somebody to work for me and there was a chance that they would get dragged down into the debts of my company, why would they want to work for me? I mean, they'd have to be insane. So in order for me to survive as a company, I need to kind of give my employees and my investors confidence. The risks of the business are manageable and it's something that they can live with, not something arbitrary that's going to be put on them as a result of working for me or owning part of my company. We do need some leadership here. What other bills should we be concerned about in the frenzy? Well, we are kind of running out of time and I got a whole bunch left. So maybe we saved the additional bills for next time when we have a better idea of what bills are surviving and which ones fall by the wayside. There was one interesting one that did fall by the wayside, thank God. There was a proposed telework credit. Now, telework is something that's a good policy during a pandemic. But the way they define telework is if you're not in the office more than 50% or 60% of the time. Well, if you're a construction laborer or you're a traveling salesperson, you're not in the office 50% of the time. There's no way. So you give them telework credits too? In the end, the committee chair kind of couldn't stomach it anymore and he held the bill. He was right. It was an article in civil beef this very morning. I don't know if you saw it about construction work and how it is, you know, it has done well in the time of COVID and it is likely to do well going forward. So we have to incentivize, not de-incentivize that kind of activity. The other thing is, and we only have a minute of those here, but it just seems to me there ought to be an examination of Christmas future. At the time, I give you a situation where there is no leadership in these tax bills or ways to deal with the imbalance of the budget deficit coming. I give you a situation where nothing is being done to incentivize new business and to build up the economy and the tax base such a way that we have more people paying more tax. What's the future of that? It seems to me that one thing is you accelerate the departures of young people who are looking for opportunities. Yeah, that's happening already. Another thing is people are getting on planes and leaving. Yes, they are. And then not coming back. Yes, not coming back. Once you go to the mainland and start something, it's not likely you're going to come back. And then, of course, the other thing is offshore investment coming to Hawaii. If we don't incentivize that, especially now, it won't come. And of course, you want to shape how it comes and what kind of business and you want to manage it so nobody abuses it, but you can't do that. And I don't think we've done that. So in the ghost of Christmas future, if we don't attend to these things, what happens? Then lots of people leave and the rest of us are kind of scratching our heads because we're picking up the slack for them. The government's still going to exist and it's still going to employ people and it's still going to do programs. And it's going to prop up the lowest of us and it's got to, it can't print money. We can't print money. So we got to have that money come from somewhere. And that somewhere is going to be the few of us who are left and who are foolish enough to obey the law. Well, it seems to me that the kind of government we want, the kind of landscape we want, fiscally and economically here, we have to work for that. And we need leadership for that. And if we don't have that, this is not going to be a kinder, gentler place. It'll be a place where political twist means more even than it already does. And where the guy in the bottom of the pole gets the worst possible deal. And so if we want to have an egalitarian fair-minded state, a state of Aloha, we really have to make the economy better. We have to make the government think about these issues and not respond to demands by powerful interests that would serve their own interests and not the interests of the community in general. That's right. I mean, we're in a process where we've got a lot of pain. We've got people dying. We have people being sick. We have to spread the pain around so each of us bears a little bit of it. We can't have people getting off scot-free. You know, people have to kind of pull together and we have to be united in facing the challenges that we have until we can turn the situation around and get ourselves up off the floor and, you know, starting to move forward again. Yeah, pull together. In a word, Kamyama Chika, President of the Texas Foundation of Hawaii, thank you so much for coming around. Thanks for having me on the show, Jay.