 We are talking tax with Tom Yamachika. This is Jay Fidel. It's ThinkTac. We're talking about stealth taxes today pending in your state legislature here in Hawai'ine. Welcome to the show, Tom. Thanks for having me on the show, Jay. Well, we're at the time in our legislature where things have kind of gone from public view and are now pretty much in backroom discussions in the so-called spoke-filled rooms. This is where the conference committees are appointed and meet, and then things happen to the bills that we may not know about until the results are made public. Well, that's comforting. You know, the legislature taken a lot of heat on corruption this year and you'd think they would try to rebuild their image. There was a piece of paper, piece of the paper the other day, about how notwithstanding the decision of the Supreme Court on a gut and replace, they were trying to do it anyway, trying to get around the decision. I mean, really, who's doing that PR? Because they should be seeking transparency. This is the opposite direction, right? Well, I mean, the two bills that we're talking about in the paper were kind of really borderline on whether they're related in subject matter at all. Like one of them had started off with a bill to increase the TAT if we got so many more tourists that it wound up being an earmark on the TAT. It still relates to the transient accommodations tax, but different aspects of it. We're kind of wondering if that would be enough for a court to strike down. What was the other one again? That was one of them, but I forgot what the other one was about. I know what you were talking about. Yeah. Well, what I'm thinking is, gee whiz, can somebody reel them in? It's not the governor. He doesn't reel them in. Maybe it's the president of the Senate and the Speaker, but they need to be reeled in. And these bills wind up making much too much progress. But let's go to the stealth bills that impose a tax without saying it's a tax through the Department of Health on the supply chain for food and other non-durables. What are those bills about? Okay, so I call this show stealth taxes because it's a means of having the government charge money, and of course the cost is passed on to you as a consumer. But you really can't see it as a tax. It doesn't affect the tax code. It's hard enough for us to watch the bills that affect the tax code, but then there's stuff like this that doesn't even do that. This one is House Bill 2399, which establishes an extended producer responsibility program that is designed to slap a so-called fee on anyone who imports your cell's fast moving consumer goods, which means anything non-durable, food or drink, for example. So this is on consumer packaging. The fee in the current draft of the bill is $150 for each metric ton of packaging material placed in the market. Now, how that translates to the individual consumer goods, we really don't know. I suppose maybe a fraction of a penny goes into the paper that wraps your burger. Another penny or two goes into the package that the burger is placed in. This is unprecedented, right? There's no tax like this right now. This is a brand new idea, right? It's a brand new idea. Now, it turns out that there was an extended producer responsibility task force that was convened a couple of years ago that some industry people participated in, and they unanimously agreed that more study was required, right? But this bill came through anyway, so some people couldn't wait. You mean the study wasn't finished? It wasn't started. Okay. Why couldn't they wait? I mean, what's the political, real politic reason for a bill like this? Who gains? Who loses? Who cares? Well, it's probably part of the environmentalist agenda. We have these packaging materials that are polluting our environment. Well, we got rid of the foam. Okay. Now, they use paper. Well, the paper shows up everywhere too, so we got to do something about that. So that's kind of where we're at now. So you see that in not only this, but also in other things like the carbon tax, which we talked about before, but carbon tax is kind of more, I mean, that one actually is a tax and it affects the tax code. So that one we could see right away. We didn't see this one. Well, yeah, let's talk about that. I mean, do you think somebody intentionally tried to get it by those who would oppose new taxes? Probably not because the industry groups knew this came up and the industry groups testified against it. Okay. And their view is that it's a tax. It's no more, no less than a tax and good for them that they spotted it and call it out as a tax, right? Well, that's not what they said. I mean, they said that, you know, geez, our industry is already reeling from the pandemic and you're going to whack it again. Okay. Let's talk about that. Let's talk about public policy on this, because I think it's a case study. It's not just this one bill. It's a case study. So here we are. And we have inflation, which is especially troublesome when you're talking about food wrapped in these things. It's especially troublesome when you talk about the fact that Hawaii imports a lot of food and doesn't grow the food. And the state government has done little or nothing to incentivize new agriculture businesses, even though we've talked a good game for how many 20, 30 years. And let's talk about, you know, manufacturing so much as actually packaging and creating product here, you know, aside from the agriculture itself. And I guess there's more public policy considerations. Those are the ones that strike me. So that if I were doing public policy on this bill, I would say, are you kidding? Are you kidding? In times of inflation, as you said, in time of COVID, in times of restaurants going down, you can't afford the last penny, in times of, you know, a failure of sustainability on local agriculture, local food packaging, or anything having to do with food. So you want to impose a tax from left field on food? You know, if you weigh and balance the considerations, public policy would forget about whether, you know, it's tax or not tax. Well, I mean, the counterarguments we always see are, these robber barons are lining their pockets. They can easily afford it. So let's, you know, let's go whack them. Yeah, right. The argument that the taxpayer can afford it. So we just keep on whacking him and whacking him and whacking him. It's a bottomless pit of creative possibilities that are called tax or not called tax, which impose great burdens on the consumer. That's what it is. And you think the legislature would be really busy in trying to incentivize agriculture and trying to deal with inflation. This is the wrong way. Not only that, but this new fee kind of harkens back to the general excise tax of the old days when it was opposed on everything. And there was no like, I mean, there was a possibility that would pyramid multiple times. So as currently drafted, this fee could apply multiple times in the economic chain, you know, because it's imposed on sellers, it's imposed on the person who uses the paper plates to sell plate lunches, and it then is also applied on the seller of the paper plates. And if there's somebody who imports the paper plates and then sells them to a middleman, it's applied a third time and there's no different rate. Yeah. Wow. Who's watching the store? Who's the champion? Who introduced this bill? Let's find out. This one was introduced by a whole bunch of people in the house. This is the house version. And the Senate version, Acasio-Chen Gerber, Big Muriwaki, on the house side it was about 20 people. What makes it so popular? It sounds popular. It does sound popular. It's probably part of the progressive agenda. Sometimes the progressive agenda conflates with things that aren't really progressive. You and I know that. Sounds like this is one of those things. Yeah. The first introducer is Nicole Lohan, who currently heads the environmental committee in the house. So actually, how does this help the environment? Supposedly it gets rid of the solid waste. How does it do that? I didn't hear anything in the mechanics you described that would do, in fact, that. Well, let's see. It assesses the resources needed to reduce the volume of packaging waste sent to landfills or power plants that burn municipal solid waste as a fuel by 50% and 80% by a date to be determined by rule. So what they want to do is they want to reduce packaging waste and I guess propose to do that by making it more expensive. I'm not catching it yet, Tom. I'm sorry. Because it's more expensive than you don't wrap the hamburger in paper waste. No, because people buy fewer hamburgers because it's so damn expensive. Okay. That makes a lot of sense. So you get rid of the waste by taxing the paper goods that come in. Right. Is there any indication of a logical connection between taxing the paper goods and getting rid of the waste because they're more expensive than buyers of these things won't use them, but they need them. They absolutely need them. And what's interesting is that they put that in the Department of Health. If you don't have the paper to wrap these things, that is a thread on public health. You need to be able to wrap them to keep them sanitary. Well, it's the same thing. It's the same kind of argument for the bottle bill. People are concerned about the number of bottles and cans. So they make the bottles and cans more expensive by adding the high five nickel plus the one cent or two cents administrative fee on each purchase. So they want to drive down demand and reduce the number of cans and bottles that are sold. So this is probably following the same logic we're trying to. Did the bottle bill work? I think it did. Yeah, maybe. So you've got to give them credit for following some sort of established pattern in the thought. Maybe it's experimental, but in the thought that if the bottle bill worked, then the wrapping bill will work. Yeah, the problem I have with the bottle bill is that the system as it had been run by the Department of Health was susceptible to fraud and was actually being preyed upon. And the State Auditor found that out, and then pretty much nothing was done about it. Let's go to our second bill. Before we do that, just one other thing is the Department of Health is the Administrator on this system. The Department of Health does not have the administrative capacity to charge a tax or something that looks and smells like a tax. They would be starting up a whole administrative effort of bureaucracy, if you will, by creating a mechanism to charge, to identify and charge the tax, and then collect the tax. This is not in their wheelhouse. What does this mean in terms of public policy and fiscal policy? Well, I mean, they can do it now, because since they're administering the bottle bill. So we can probably just tack it on to the same folks who are doing that. Okay, well, that means there's a certain logic to that, too, then. Yeah. I hate to say it, but there is, yeah. I know. Okay, well, we're trying to be reasonable and explore. I think my biggest concern is the legislature should be trying to make it easier for restaurants. A lot of restaurants are going out of business. Right now, I can tell you, and COVID has wrecked havoc with the restaurant industry. And agriculture is not growing. I mean, everybody says, oh, it's a good thing, but the legislature puts very little money into it. We made a movie about that called Scaling Up Hawaii's Food Supply. And we really don't grow much food here, nor do we incentivize anyone to grow much food here. And so if they want to spend time on trying to do something that will have a basis of public policy, then they really ought to look at that. That's much more important. The other thing is this money that's collected by the Department of Health, where does it go? Does it go to some good purpose or in the general fund? Special funded. Ah, special funded. Yep. Controlled by the Department of Health then. Right. Same like the model bill. It deals to a different special fund as the model bill, but the bottom line is that the Department of Health gets suspended. So if you had your, on this bill, before we go to the next one, on this bill, if you had your druthers, how would you change the bill so that it meets some minimum standard of contribution to the economy, contribution to this, you know, to Hawaii? I'd kill it. I knew you'd say that. Okay. Let's move on to the next one. Okay. The next one I wanted to bring to everybody's attention is Senate Bill 3040 sponsored. This is an administration bill sponsored by our Department of Accounting and General Services, and it deals with state procurement, namely where the state buys goods and services that it needs. Right. So it's a consumer like most of us, except that, you know, buys a lot more things and a lot larger quantities. So what happens here is the Department of Accounting General Services is going to come up with an e-procurement system. So they are going to do some computer upgrades and get a method by which they can go through bid solicitations and so forth over the internet, part of which they already have, and pay people over the internet. Okay. Here and here's the catch. There's a fee for doing that. Who charges the fee to whom? The bill doesn't tell us how much the fee is going to be, but it gives, the bill gives, the state procurement office, the authority to set the fee to cover procurement system automation costs. So what that would cover is an acquisition cost of five million dollars in the first year and one million to maybe half a million per year thereafter in maintenance and licensing fees. Okay. This takes me back to Sonny Bugwalia. Sonny Bugwalia, they hired him away from GSA. He was a management guy in GSA in Washington. They hired him and they said, would you please take a look at our computer system here in the state? This is... Hunter Governor Abercrombie, right? Abercrombie, yeah. And he couldn't stop laughing. Well, yeah, I mean, it was a joke. Abercrombie says this is like the second coming for him that he could get this big shot in here and the guy would have a staff and it was a public-private partnership. Some of the big billionaires in town contributed and they paid him a salary, got him a staff, had offices in the capital building, as I recall, and he was going to make a study of how the state computer system was deficient. Well, we all knew that. Everyone in the state knew that. Everyone in the state government knew that. But he spent a ton of money, millions making this report saying that the state computer system was deficient, that it was old, that it wasn't being supported by the original vendors, that it didn't do the job at all. And it was stuck, you know, it was like over the hill. And the big long report, and that was his conclusion that everybody knew anyway. And then he quit, went back to Washington, that was the end of that. I think Abercrombie hired him at $0 per annum to be our computer representative in Washington, which was a way of saying that, no, he didn't really quit, he was promoted. That was the propaganda at the time he was promoted. And then Abercrombie threw a great big party for him and he was gone. And the report sits on the shelf saying that the state computer system is terribly deficient. I don't think much was done about that report. And if something was done about it, and I'm getting to the point, if something was done about it, wouldn't that properly have been all along the way, all along those decades where we didn't do anything to upgrade the computer system in the state? It wouldn't have been paid out of the general fund. You wouldn't have to create a whole new source of income for it, just pay it out of the till. I don't understand why and why everything has got it. You got, in order for you to spend money on things like that, you have to create a source for it, take it out of the till. That's where it should come from. And now they're doing it again after not having done it for a long time. Yeah, that's what Kaya Townes philosophy was. But here, they're not focusing on the fact that an automated procurement system is going to save costs. It takes less money to do electronic steps than it does to shuffle paper. Okay. And it's much easier to pay people using electronic funds transfers than it is all true. We've known this for 20, 30 years. The business community knows this like its own heart that you have to keep on upgrading computer systems all the time. And you have to be careful and smart about it and not spend in the wrong direction. But ultimately, it will make your company more efficient, lots more efficient, magnitude more efficient. So I don't know why the state hasn't done this already. It should have been doing this a long time ago. And as I said, I think it should comes out of the till, not a special fund. But anyway, so I think you're saying what I'm thinking that this should be a general funded project. And people shouldn't be paying a tax for the privilege of getting paid from the state if they provide goods and services. Well, yeah, they're going to get taxed because that's how a GE tax works. But adding something else on top of it because you're I mean, to be fair, okay, it's not mandatory now. But that's the next step. I mean, it's written all over it. The next step is once this bill passes, the next step is going to make the fee mandatory. So when the bill passes, you would have an option of paying it or not paying it? That's right. Why don't they just update the system? I mean, what's so rocket science about that? Well, they're going to do that anyway. But now with this bill, they're going to get somebody to pay for it. Namely all of the I'm still lost. I think that this is a core production mechanism in state government, you know, state government as a service, right? It's the most important part of the brain. And to have this thought process and this processing capability with computers, which is everybody in the world does it from every continent. I don't I don't know why we have to have what amounts to a tax on that. That's a core function of all government, including state government. Am I wrong here, Tom? I mean, you're not wrong. I think this is something that we should be expecting of our government that, you know, they're going to get away from paper, you know, for, you know, lots of reasons, including, well, maybe we want to have them be defined as an extended producer responsibility so they can they can pay, you know, pay a fee on their, you know, the amount of paper they use to push their, you know, push their forms. Well, you know, it strikes me that that report, which I'm sure made recommendations, the one by Sonny Bagualia, you know, has things like that in there. I mean, for the basic principle, you want to have a more efficient, in fact, Abercrombie himself said this. In fact, I have it on tape that he said this, that if you want to have a better state government or more efficient state government, improve computer system. So I don't know why we get distracted with a bill like this, when we actually haven't done the job yet anyway. And my problem with it, in a larger sense, Tom, I like your thought, is this is the wrong road, creating a special tax for something that should be out of the general fund. Because there are a lot of state functions that the state should be doing. And now it's a kind of precedent, isn't it? If you want us to do our job, you have to pay a special. That's right. And the money goes into a special pot and is exclusively spent by the agency that's doing it. And, you know, they may or may not have some scrutiny by the legislature through the appropriation process, but it's designed to avoid the appropriation process. We raise this money ourselves. You know, this is self-sustaining. You don't have to look at it legislature. That's not the point. The legislature is supposed to look at all of the expenditures on behalf of us, the people. When Linda Lingle got into office, I was sitting on the high tech development corporation, the board, and her instructions to the board were you guys have to find a way. This is a state agency, an attached agency to DBED. You guys have to find a way to make yourself self-sustaining. You have to come up with ways to raise money. You have to act like a business organization. And then you have to perform your state duties and take instructions from my administration on what functions you should perform. But you have to raise the money to operate. I said, gee, that is a strange kind of approach. Isn't it a state agency charged with raising the money to operate? But I think we have more and more of that in state government. And I think it doesn't really reflect the reality. State government has the power to tax, let them tax. State government's obligations provide governmental functions. Let them do the functions. But operating like a private business to raise the money to perform functions it is statutorily obligated to do sounds to me like a twist on the basic concept. Well, I think we're kind of relegated to optics like that because of the reality that we're heavily taxed as is. And if we get taxed heavily and the state government's not doing its job, so what's it going to take to make them do their job? More tax and let the executive agency do spend it as they want. I'm not sure about that. Yeah. Well, so you get a lot of little agencies, all like little businesses, raising money for their own. You know, but at the end of the day, you are avoiding, especially in this and election year, lest we forget, avoiding raising taxes because that's unpopular, politically unpopular. So I agree with you. We have very high taxes to start with. And now we find ways to tax indirectly like this and like the packaging bill. And it doesn't show up. It doesn't show up. So we are not telling the public that we are raising taxes. And what's interesting too is we already have containers, structures of tax, which we could apply. You know, like for example, the use tax, the gross excess tax, which is plenary. And if we wanted to raise money in a transparent way, we would use mechanisms like that or by the income tax. But we're afraid to do that politically. And I mean, people have tried that before and have gotten all kinds of pushback. Okay. Well, what's your message on this, Tom? I mean, this is a really fundamental concept. And I don't know if it could be fixed in the short term, but what's your message on it? Well, I mean, if what lawmakers are trying to do is to avoid the message that voters were giving them when they tried to raise taxes directly, they really ought to kind of start listening again, because voters told them that they didn't want more taxes. And lawmakers should take that seriously and not try to get around it by this step or the other, artifice or strategy. You mentioned in the early part of the show that there were a lot of bills in the ledge that were indirectly or directly raised taxes. So the ones we've been talking about today, specifically, and not the only ones, it sounds like there's a whole onslaught of bills that would raise taxes on the people of Hawaii or that would raise other charges, which are effectively taxes. Well, I mean, there were more. They're not too many now. It's come down, but it's it still kind of raises the question that we need to be diligent as taxpayers and look for this kind of stuff. And as, you know, for a person in my organization, we've got to read up all our efforts to call out stuff like this so people understand this is what's going on. Very important public service. And hopefully it will have a long term effect and it will make our political leaders understand that fiscal responsibility is more than just raising taxes. You can quote me on that, Tom. I'm glad we can. Thanks for having me on the show, Jay. Thank you, Tom. Tom Yamachika talking tax with Tom. We'll see you in a couple of weeks. Thanks. Thank you. Follow us on Facebook, Instagram, Twitter, and LinkedIn, and donate to us at think.kawaii.com. Mahalo.