 ideas for Hawai'i tax and economics with the tax attorney of long-standing Roger Epstein, who joins us here on Community Matters on Tink Tech. Welcome to the show, Roger. Hi Jay, always great to have a conversation with you. Absolutely. So you were making my heart go faster before the show because you were describing your reasons for being interested in all this and how life has changed in the course of our careers and our lives on the planet. And I hope you can repeat that. Yes. So having grown up like you in the 50s and 60s, gone to college and law school in the late 60s, early 70s, I have seen the changes of $200 to go to college at the University of Maryland. That was my total tuition, about $1,500 a year to go to Georgetown Law School. Got out, I could make $10,000 and buy a house for $15,000. And just a whole ability to live what we used to call the American dream of working hard, getting an education, either or both, and having a good middle-class life. That has all gone out the window, literally since the right wing, the Republicans came with this idea that government is bad. What did Reagan say? It's not the answer. It's the problem. And that trickle-down economics, what's good for General Motors is good for the country, has turned us into a situation where the 1% of the country or 700 people own more than half of the wealth of the bottom half of the country. And college that I spent $200 on is now $15,000. If you get out of school today, out of the University of Hawaii, and you get a job making $35,000 a year, and you can't buy a house for 150% of that, you can't even buy a condominium for 10 times that, much less a house for maybe a starter house you can get for six or 700,000. So what's that? 20 times your income if you can get a decent job. So I give up on the feds. We're too far away from it. The Congress has been dysfunctional for over 20 years, but Hawaii is really in a unique position for many reasons. To be able to do somewhat, you and I have chosen to call for this program out of the box ideas, completely consistent with our capitalist framework. I'm not talking about revolutions. I'm not talking about over becoming a socialist government even. I'm just talking about a community that where the people here who live in paradise, who live in a fabulous place can have a decent economic life here too, instead of simply inviting the wealthiest people in the world to come here and let outside corporations own the hotels and the tourist industries and make all the money. So that's the thesis that we could take back Hawaii in a very appropriately political way. We don't have to change anything. We just have to make a decision that our community is basically for the people who live here. Oh my God, you have my attention, Roger. I am all ears. Okay, so I have about eight ideas for living wages, affordable houses, significant sustainable agriculture, and meeting better community needs with revenue to benefit revenue in the form of taxes to benefit our people here. So let me start with this one. I have a list that I sent to you, Jay, and I'm going to kind of go through that. So the first one has to do with agriculture. So I invoke the name of one of my great heroes and friends, Ramsey Tom. He's come up with a plan years ago, and I know many people have talked about this, and we haven't implemented, but called a Kona Hiki organization. So in the old days, you had the Ahupua'a, the Kona Hiki was in charge of it. People who wanted to come and farm on that pie-safe wedge gone to the ocean from the mountains could simply reach an agreement on vacant land, start their farm, and grow agriculture, and then share it with the community. So here we could take land that there's lots of land here to grow vegetables. Why and I used to be the bread belt of Oahu, not to mention the central plateau, which now we're going to build a housing development bigger than Hawaii Kai instead of agriculture. But the concept here would be to have a shared infrastructure, a shared cost of everything it takes to become a farmer, and to farm the land. And we would have the Kona Hiki be the owner in some fashion, whether it was Kamehameha school's land, whether it was state land, whether it was private owner's land, that we would refuse to rezone as housing developments. You know, the housing into the ownership of land is just hold on long enough and keep pounding away at the state, and you don't have to make agriculture, you don't have to grow anything. All you do is wait and you can turn it into a housing development and you're a lot better off. So let's not do that. So the idea with the Kona Hiki would be you take big tracks of land, you know, dole is selling all their land up there. Some of that may be poisoned with pesticides, but you could straighten that out. We could buy a lot of dole land. The community could work out together with the banks who have to emissions. Anyway, you put together philanthropy, government, banking, and private investors. You buy big tranches of land and you have it owned communally. And then a farmer, and there's lots of people who like to be farmers, I'm told that on five acres of land, you could make $100,000 a year net profit some depending on what you grow, of course, sometimes ago. So the concept is the Kona Hiki builds out the infrastructure. The farmer gets a lease and they farm the land and share the profits as a rental for the property. And you can't build a house on it. You can't live on this property. It's agriculture. These are not for gentlemen farmers like most of our ag zone lands are. This is agricultural land that you have a lease to farm. You'll have to drive from your house or live close by, but it's not, and if you maybe put up a shed or something or put on a something you can sleep overnight, but that's the concept. And I'm not going to go into detail this. No, but do go into details about what kind of legislation you need to do this. First of all, it sounds like you'd have to bring a bunch of institutions, organizations, business organizations together to make the investment in the Kona Hiki in the in the commune. And then of course you'd have to figure out what the terms of that communal ownership are. And that wouldn't be easy. You'd have to come up with a kind of a new approach to condominium essentially to write a horizontal property regime essentially for how it is managed and who has what rights and obligations. But what do you have to do? Yeah, I all these things can be mapped out. Yes, it's going to take the will of the community. You're going to need the government. You're going to need the banks. You're going to need the Hawaii Community Foundation and other philanthropists. You're going to need OHA. You're going to need Kamehameha Schools. Do we are we a community? Can we bring this kind of will to bear? And I don't think you're going to need legislation. I think we're just going to need the community to get together and say this is what we plan to do. And in the 50 years I've lived in this state, the biggest problem I hear from everybody, we have enormous talent. We have enormous possibilities. We cannot bring ourselves to act together as a group. There are only a million people on Oahu. Getting together should be not that difficult. Well, you need a leader. You have to have a leader who's willing to sacrifice and be a leader. It ain't pretty sometimes. And you have to have followers who commit to following the leader. I guess that means a political leader because that's how you get selected as a leader for a large project. Am I right about that? I think so. And I think whoever becomes the next governor could appoint a lieutenant governor for this. Could take the reins themselves if they really wanted to. But it's got to be a full on, yeah, let's do this because this is our lives and our kids' lives in the next generation. And Hawaii is, we have the largest per capita homeless problem. I've been to meeting after meeting and nobody does anything but talk about it, it seems to me. I mean, Duane Carisu did a nice project, but what was that? 50 people or 30? We've got to tackle these problems as if we really mean it, Jay. Okay, so you're shifting gears now. You're into another out-of-box solution. You're talking about homelessness. You're talking about building- Yeah, okay, so agriculture. So I'm trying to put together a package of ideas that could be taken on by this, you know, there's an executive council now that's been the top 50 companies that now is trying to solve problems in Hawaii. And if we try to solve them piecemeal, we're going to end up with the same stuff. And this is not a simple proposal. This is some ideas that would work and get us into a whole new place. What's your idea about homelessness and affordable housing? Okay, well, a couple ideas on homelessness and affordable housing. You're taking me off my list here. My job. That's your job to get me out of here. All right. Well, one thing we could do, first of all, homelessness and affordable housing is not going to be solved by building new buildings, period. We've got affordable housing that in 20 years becomes unaffordable housing. It's limited. There is plenty of space in what we have now and the pandemic has created substantial additional space and other communities are taking advantage of it. Downtown Honolulu is a vacant lot, you know, and it's not going to get any better. So take these commercial buildings in downtown Honolulu, turn them into studio apartments. The government could buy them at a fair market value price and we could put people into that under some kind of standards. Now, there's different categories of homeless, houseless people, some of them are just missing a paycheck or two. Some of them are completely incapable of taking care of themselves mentally or physically. Some of them are on drugs. Do you know we don't have a good drug rehabilitation in the state? If you go to jail and 80 percent of more of the people there have drug problems, we don't have a drug rehabilitation program. We just aren't tackling the problem. So that would be one answer. Look for vacant space rather than starting to build new properties. And Harrington, what you're saying is it's rental. The model is rental instead of own your own home. Well, this is for houseless. Now, the next step, so that's houseless. That's what I'm saying. Look for spaces that could be turned into residences because brick and mortar commercial properties are going to continue to suffer because everybody's gotten into buying over the internet. And because the big guys and the Walmarts and the Targets and these kind of people are really stiff competition for mom and pops. Now, not everybody's going to be out of business, but a lot of them already are. And let's really take an inventory and try to utilize that space for a certain category. Why did we close the Connoi sanitarium mental institution? I don't know. I'm sure it had a lot of problems economically, etc. But we need a place for get people off the street. Some people need to be in an institution and it needs to be run in a way. I've heard IHS is, I mean, it's a wonderful place. But you go down there and there's a lot of chaos and a lot of people don't want to be there. So we need to expand the availability of that. Okay, affordable housing. Okay, here's where we get into a whole new out of the box concept. Housing is designed for two purposes in our society. One, shelter to investment. Everybody knows that your house is your best investment. But what we need is a shelter. So rather than build new houses, we create a program that is already very deeply analyzed and vetted, which again uses a Kona Hiki. The Kona Hiki company becomes a co owner buys a property anywhere on the island and buys it at whatever value they can they can get. Again, the funding for this is through loans from banks, maybe state bonds, philanthropy, all this kind of stuff. The Kona Hiki buys the property and then finds somebody, a good example would be somebody renting a house or an elder person who needs to get money out of their own house. The property is sold to the Kona Hiki and then a person who has can't quite get into a place now and is renting puts up just a nominal amount like 1% of the cost. So let me give you an example. Kondo costs $500,000. The Kona Hiki buys it for $500,000. J. Fidel says, I want to be a co owner. I want to own this property puts up 1%. The other 99% of the cost is borrowed instead of paying. So your down payment is only 1%, but you get a little skin in the game. The mortgage, you just pay interest only. You don't amortize the principal. So you can work this out so that the cost is less than the rental cost. The numbers show you could buy a place and own it. And you're an owner in a way very similar, maybe a little bit less than a cooperative owner or a Kondo owner, but you have all the rights to the use of your place. You can be quested to your kids. You can redo whatever you want. Within the context of the co-op homeowners rules or the Kondo homeowners, similar kind of thing, money is put up in case certain people as somebody defaults. But let's say we bought 10,000 to start. We go out and buy 10,000 units. Everybody can get in for 1%. And so these are not, these are working people who are making money. They're not out on the streets, but instead of renting and worrying about whether your landlord is going to have his kid move in or raise the rent every year, you just pay the interest. So now you've got to paying about what you pay on a rental. And if you decide that you want to leave and move to something else, you only get out of it the 1% you put in. If the house is now worth a million, then the Kona Hiki buys it, or you get your share of whatever you put into the equity. The Kona Hiki resells it for $500,000. And instead of losing affordable housing over time, you gain really affordable housing over time. Because now 20 years later, when this guy dies with no children or decides he wants to move to Arizona, he gets his only back and the house is still worth $500,000 for the new purchaser. Now we're building an inventory of affordable houses. Instead of going out and using up all our valuable land that we have so little precious little left, we create affordable housing forever and it gets better rather than worse as the value of the houses go up. It becomes that much better. So where does the money come from? The money to buy these 10,000 units. Okay. So it's basically going to be loan capital, bank loans that are guaranteed perhaps by the state, just like a state bond would be. Banks are required to have community investment funds. We might use some of that. There's philanthropy and you can build in a small profit if a private investor would put in some money. They could make a couple of percent, which is more than they're getting now. You put your money in the bank, you get like 0.12 percent interest. I think I got $100,000 in something that I just made $3 on last year. So you could even make it attractive for private. Again, this is not something we're going to do tomorrow. But if we don't start getting it in place, we don't start thinking about these things, Jay, then we're going to have more and more issues. It isn't getting any better. No, it's not. It's going to get worse and the US dollar is going to go out of use in 10, 20 years, 50 years. We got to be thinking ahead. We got to be thinking of the future. Let me turn you to one other issue that you and I discussed briefly before the show began. That is the management of offshore investment. So I come around. I want to buy a shopping center. I want to do condo. And the question is, say I want to do a shopping center with a lot of retail. The question is, how do you tax me? How do you tax those retailers? Right now, we have a reach situation with a reach buy at all. There's been a bill in the ledge for a long time that hasn't passed yet. That would tax the reach. Right now, the tax is imposed on the owners on the mainland, but it is not imposed here. And the result is a lot of money that we could tax is not being taxed. Let me do the read first. I was very instrumental in designing a bill for taxing REITs. As you said, the trick with REITs is they don't pay any tax themselves, not like other corporations. And we have it with my last count, we had $20 billion worth of read investments, including the Alamoana shopping center, the Hilton Hawaiian Village, the Pearl City, I mean, a lot of trophy properties, if you will. The bill that's in the legislature now would simply eliminate the tax exemption, so make a tax at the corporate level, which changes the nature of REITs because they're supposed to be like everybody can put in $1,000 and be a real estate investor. And mutual funds, it's a mutual fund for real estate. And mutual funds don't pay tax, only the shareholders do. So I just, the other day, submitted a bill to several of our legislative people who asked me for it, one that I proposed two or three years ago, which has a withholding on the distributions to everybody, out-of-state or in-state people of Hawaii tax. So if the Hawaii tax is 6% for corporations, then your distribution of $100 as a REIT shareholder, you get 94%, the state of Hawaii gets 6%. Just like every time you get a paycheck, you get 94%, and the state of Hawaii gets 6%, and the federal government gets 15%, whatever it is. Withholding is so common. And it's a tax at the end of the day, it's withheld, but it's realized as a tax, right? Well, yes. And when you go to pay your taxes in California, you say, I already paid 6% to Hawaii, and California gives you a credit. So there's no difference to the REITs or even to their shareholders, except if you live in Nevada, where you don't have to pay any tax. But if you live in Nevada and you buy a real estate property, you're directly in Hawaii, you got to pay Hawaii tax. And real estate, of course, is something where the advantages that the government give you are entirely clear. Police, fire departments, roads, sewers, water, electricity. Absolutely. Good point. We're paying for all these benefits, and we're getting nothing from the $20 billion is making $1 billion a year. We're losing $60 million in revenue because it's too complicated for the legislature to understand that withholding is a very simple methodology. I've even spoken with people at the Multi-State Tax Commission. They believe that this is not everybody, but a couple of technical people, not the political people, technical people, say, that makes a lot of sense, Roger. This is what the federal government does for REITs. They give you a break, too. But if you're an American, you pay your own income tax as a shareholder. If you're a foreigner, the federal government requires the REITs to withhold, I forgot what the number is, 10%, 30% of the distribution to a foreigner and turn it over to the federal government as the foreigner's payment of U.S. taxes. Otherwise, it flies away on little wings. Which is where our money's going. It's flying away to New York and California and Florida and places that aren't providing the services that we're providing. So that's number one. That REIT is a good thing, and it could be passed this year. We passed a bill several years ago, which actually just created the tax at the REIT level, because the withholding was too complicated. And it passed unanimously by the legislature, and Governor E. G. V. Toded, because he was afraid we weren't going to get investment by REITs. But I tell you, what do we care if we get investment by REITs? They're not building anything. They're just owning properties. If they don't want to own it because they've got to pay a tax, then sell it to somebody else who'll own it. I've had so many people come to me looking for investments in Hawaii over the years. People in Asia, people on the continent, practicing tax law. I've just met a lot of people in international lead. And we could get so much investment in the state. It's not funny. People are looking for deals here, and you can't find it. And why do we give a break? And why do we lose $60 million in tax a year? Because the REITs don't want to change. Nobody wants to reach the REITs opposed legislation like this. The REITs opposed everything. At first, they started saying, well, look, we're already paying real property taxes and general excise tax. And I said, well, next time I find my income tax return, I'm going to put on there. I don't have to pay income taxes because I paid general excise tax. And she'll fire you again with that. All right. Let me go on. I got some outer boxes. All right. So I've seen, since I came in 1972, the price of hotels go from like $50 million to $850 million. So why is that? And who's making the money on that? This is not anti-capitalist. You're entitled to make money. I've done real estate deals. I've had lots of clients. It's the degree, Jay. It's the degree of how much the capital is getting, how much the real estate is getting, and how much the people working are getting. And that just as an example, when talking back in the 60s, a guy on a factory floor or working was making 30, the president was making 30 or 40 times what the guy on the floor was making. Today, it's four or 500 times. Okay. So you take, you create a new tax. You call it a wealth tax or a value tax. You don't have to be a real estate tax because that's left to the counties. But the state creates a new kind of tax based on the value of your property. And you tax, let's say you tax the Hilton Hawaiian village, $10 million with this tax. You give them a credit for every dollar they spend on a livable wage for their employees. Not a simple calculation. A lot of ways I can see all kinds of loopholes and things, but that's the concept. You can pay the tax and give the government enough to give free services to people starving on the street and buy these units for housing people, or you can pay your own employees a livable wage so that they don't end up on the street or working four different jobs, both them and their wives, two or three jobs literally to make the bills, make the ends meet. So that's another one I like. This is a tax on the owner of what? Real estate? A tax on the owner of, it could be that shopping center you're talking about, but what I'm really thinking about is the hotels. But I think shopping centers could be in the same category and people have to be paid a livable wage. But what happens when the hotel pays more money, when it pays more salaries, its value goes down. So now we're lowering the value. No question we're lowering the value of this real estate, but we're making it closer to that 30 to 40 times that it used to be instead of 400 to 500 times. And we're having it participate in the civic process here, sort of pay its dues to the community. You know, why do people come to Hawaii? Because we got a Hilton hotel. Yeah, it's nice that there's Hilton hotels everywhere. They come to Hawaii for the beach, which is publicly owned up to the vegetation line, and for the ocean and the sun, none of which belongs to the hotel owner. It belongs to us if it belongs to anybody. And so that's my thinking that the wealth has to be shared in some way, and that it's not unreasonable to force people who real estate is a risky business. Anytime you talk to somebody and say, well, how come you made so much unreal? Well, it was risky. I could have lost money. Well, maybe you're going to lose some money. I don't want to put anybody out of business. I don't want to see them go bankrupt. But I do think that the fact that the value of their hotel went up 10 or 15 times in the last 20, 30, 40 years, and their workers who used to make a decent living now have to have other jobs just to they can't buy a house, but just to rent a place and have their kids have food on a table. So I really like that one, Roger. We have time for one more. You got one more for us? I got lots more. Let's see. Oh, here's one. How about government money? We print some Hawaii money. It can't be called money, but it could be Hawaii kingdom dollars. It could be and two things we do with this money. First of all, the state could get services. You want to get an outside contractor. You pay them with Hawaii bills. And there are other cities and communities in the United States that have their own money and have been doing it for a long time. So this is not entirely new. Now the state doesn't have to raise taxes to get the money because all they got to do is print more money. And then they agree that the money that they printed can be used by the service provider to pay their taxes. Now, as long as the state says you can use it to pay your taxes and other state obligations, the community shopkeepers will begin to accept it. And so we've created a whole internal currency. The money's not going to leave the state. And the government now has additional funds rather than raise taxes to do these community services that we need. Who's backing these dollars? Who's going to pay off when these dollars are presented for American money? No, you can't change it for American money. Cannot do that. The state receives the state will take its own dollars back and use it for any obligations, including your taxes to the state. Interesting. Interesting. Yeah, the federal government will not take it. It's not intended to be an exchange of currency for federal currency. That's illegal. But if the state prints, you know, with that image of the king on the dollar and it will take the money, then other places have shown that stores and service providers in the state will take the money. And then it becomes an internal kind of currency that, again, if you take a dollar and you buy something with it, it multiplies like 10 or 15 times the shopkeeper pays his employees, he buys some more. So all this. But if you put it out of state J, because it's gone to Walmart, who ships all their money out of state, then you only get one time instead of 15 times. And not only that, this will help promote local business. Sure, it will. And furthermore, tourists who come here and buy these Hawaii dollars, we'll see it as a souvenir item. See it as a souvenir item. And never try to pass it in any context. There you go. Or they could use it to buy, you know, Hawaiian cookies or whatever they want. So this reminds me of Hawaii currency during the war. Are you familiar with what happened? I'm not, but I have some vague idea that this kind of thing has been done previously. And I am aware that it's being done in several locations now within the country. Special dollars, American dollars, US dollars were issued with a stamp on it for use in Hawaii only during the war. They didn't want a cash flow out of here. They thought it was a matter of national security. So you could pass these dollars, you could not pass regular American dollars. You had to trade them in. And at the end of the war, they bought them back from you. This is very interesting. And it has a historical root somehow to have special dollars that are only available in Hawaii. And those are collector items right now. Anyway, one more. Let's do one more and then we'll go. Okay. Okay. I got one more. You know, Jay, I sent you this list. I'm happy to work with you. Anybody you think we could get together to do this? Okay. Here's a, here's a, I'm going to tie two together. Volunteerism. Okay. There's only two things that generate revenue. Time and money. And so money is fungible. And it's also very inflationary. I remember when I worked for the federal government years ago, when, in DC, everybody worked for the federal government. When a government announced a X percent rate, they announced a raise for the government workers. The parking lot raised its fees by a dollar the next day. They didn't even wait until it was implemented. Opportunism. Okay. Okay. So dollars are inflationary, but an hour of your time is an hour of your time. And we're in a situation where people are living longer. They're retiring. We're in a community. We could just create more meaningful ways of volunteerism. You could even volunteer for government jobs. How many times have you gone to get your car license or whatever your registration and had to wait in line and say, what? And there's two empty spots where people are out to lunch or whatever. There's no reason why a volunteer couldn't be sworn to secrecy the same way those paid workers are. And you go in there and you learn the job and you do the routine stuff. But it's meaningful and it's helpful. And I'm not saying there's thousands of opportunities. How does it work? How does it work? So let's say for the government. The government creates a whole plan and makes it known through advertisements, through, you know, through media that these positions are open for volunteerism. And they have to have work with the people in the government to accept volunteers. It's no pay. No pay. It's volunteer. But you're working, you're putting in four hours, six hours, eight hours a week to help your community have better services, including you. And of course you could do it at hospitals, which already do it, but you could just expand the programs everywhere to make volunteerism a kind of a, hey, I'm retired, but I'm still going to put in one day, eight hours, 10 hours in some capacity, but you have to make it meaningful if it's just BS and people are sitting around, it's not going to do any good. Yeah, no, I love that idea. And if you had a structure, if you had an organizational structure, implicitly you'd have recognition of the time and effort and contribution that individual makes. You could go on the website and you could see what your hours are, how many, and what your neighbor and everybody else put in. And then you could celebrate him or her. You know, you could give him awards. You could incentivize him in so many non-monetary ways. But you know, the main thing is, the main thing Jay is aloha, the main thing is aloha. And there's so many people retired and more coming who are going to be, who are going to, in fact, those people are going to need more volunteerism. But there are people who are going to be capable for working 15, 20 years after they retire. And let's put out a way, let's create a system to have meaningful volunteerism be your aloha citizenship opportunity. Yeah, and you know, it gives you an identity. It gives you a cause in life. It gives you a purpose in your retired years. It'll help you live a better quality of life and longer to have to know that you are making contribution to the community as a volunteer. There's a purity there. Roger would have perfect out-of-the-box solution to end our program with. Let me say that I know you have others we haven't discussed. We could do that again. And we could also bring in, as you suggested, someone else, maybe another attorney or accountant or just an ordinary business person and back these other things around. So don't leave town. Let's you and I sit down and flesh out some more of these ideas. We'll get, I mentioned Ramsey Tom. I'm going to put him on the spot if anyone he knows should be listening to this program. But and I have other people, I think, but we're not the only ones doing this. But this stuff is out of the box. And again, are we competing? Are we, let's take our ideas and their ideas and and see if we can all come together and come up with a holistic plan for making Hawaii a wonderful place to live that it deserves to be. Roger Epstein, we'd love to have you on the program. We'll do this again soon. Thank you so much for coming down. You're welcome, Jay. My pleasure. Thanks for inviting me. Aloha.