WMTA Shares these commentaries, without taking a position unless otherwise noted, to bring information to our readers (received via e-mail http://us3.campaign-archive2.com/?u=f9a371d0547f107d938233d66&id=698ee99ec4&e=f6e4535c78) Dear Joseph,
Hawaii's police officers and firefighters have some of the most respected positions in the state ... from an economic perspective, at least. In fact, new research from the Grassroot Institute suggests that Hawaii has a deep appreciation for public sector workers in general. County workers throughout the state make higher wages than nearly all of their mainland counterparts (adjusted for the cost of living). And police and firefighters have the highest average wages of any Hawaii county employees at $75,000 per year, not including benefits or overtime. And those benefits are well-known to be generous. Our research shows that government benefits in Hawaii have grown at a rate five times faster than benefits in the private sector. Given all of these attractions, it's not a surprise that Hawaii's public sector is growing faster than the private sector, where median wages are, on average, only $38,750 per year. But while those public sector workers deserve competitive wages and benefits, there is a looming danger in the explosive growth of our state government. And those same public sector workers could end up paying a steep price. In short, our current rate of public sector growth is unsustainable. Generous employee benefits have landed the state in a pension crisis with unfunded liabilities now topping $23 billion. At this point, taxpayers are footing 76% of the bill for government workers' pensions and health care, despite those workers only making up 15% of the total workforce. And any estimates of future costs are frustrated by the fact that the state continues to negotiate generous benefit packages without regard for the long-term effect on our budget and economy. Governor Ige has made the right moves towards paying down the unfunded liabilities, but that's only part of the problem. Unless we make a fundamental change in our pension system, the state is going to saddled with this debt for decades to come. Moreover, that debt will grow until it threatens not only government programs and services, but the jobs and retirement benefits of the workers themselves. It is in the best interest of the state to ensure that our public sector workers are well provided for. But it is in everyone's interest--those workers included--to make sure that we are not building a house of cards. We must work together to bring public sector salaries and benefits in line with what the private sector can support. E hana kakou (Let's work together!), Keli'i Akina, Ph.D. President/CEO WMTA Shares these commentaries weekly, without taking a position unless otherwise noted, to bring information to our readers Weekly Commentary For the Week of February 26, 2017 Obamacare Heavy By Tom Yamachika, President One of the ideas now working its way through our legislative system addresses the fate of Obamacare in Hawaii. Many are concerned that our federal government will be changing the federal Affordable Care Act, sometimes known as Obamacare. They would like Hawaii to keep it even if the Feds don’t. The version now being considered in our legislature, however, is so ham-fisted in its approach I call it “Obamacare Heavy.” Our federal act works by specifying a set of benefits that all health plans need to offer, called “minimum essential coverage.” Among those benefits are: all major medical insurance is “guaranteed issue,” meaning you can’t be denied coverage, even for pre-existing conditions; the law limits the variables on which the insurance price depends, and health status or gender are not among them; there are no annual or lifetime limits on health care; and insurance companies can’t drop you when you are sick or for making a mistake on your application. The act also tries to spread the costs of minimum essential coverage throughout the population by adopting an “individual mandate.” Everyone, for themselves and for their dependents, must buy health insurance. If you don’t, you pay a penalty that is enforced through the income tax system. Our legislature is now considering Senate Bill 403 and House Bill 552, which would require insurers in Hawaii to issue policies of minimum essential coverage, and then would require those subject to the Hawaii tax system to buy those policies or pay a penalty of $695 (to be adjusted for cost of living) per year. But the federal Obamacare system has various exemptions, including for those who can’t afford the insurance, nonresidents, incarcerated people, short coverage gaps, people who were born or adopted into the household during the year, or people who died. The Obamacare Heavy bills as introduced had none of these exemptions. That would produce curious results like these: Mom, Dad, and Grandpa live together. Grandpa dies in February. Grandpa is claimed as a dependent on Mom and Dad’s joint return, so Mom and Dad are required to have insurance for Grandpa for the whole year. If they insured him until he died, they would pay the penalty for 10 months. Janna lives in Kansas for the whole year, not setting foot in Hawaii at all, but rents out some property in Papakolea. Janna is required to file a Hawaii nonresident return, and is also required to buy Hawaii insurance for the whole year. (Would that insurance even cover her because she lives in Kansas?) Micah is a Hawaii resident but spends the whole year in a prison in Arizona. He is required to buy Hawaii insurance for the whole year. Same result if he was in Halawa. Obviously he wouldn’t be going to his local doctor’s office if he got sick. Kimo is laid off from his job in March, and is barely able to put food on the table for his wife and three minor children. The federal system has tax credits for those unable to afford insurance and an exemption from the individual mandate for those like Kimo. But the credits require the participant to have bought insurance on an “Exchange”; the exchange we in Hawaii tried to build imploded despite sucking up $205 million in federal funding, and the federal exchange probably will go away if the federal law is repealed. One version of the Hawaii bill has tax credits, but there is no exemption, so Kimo could be stuck with the penalty for the whole year. For himself, his wife, and kids, the amount of the penalty could be as much as $695 x 2 adults plus $695 x ½ x 3 kids = $2,432.50. If we are seriously thinking of adopting Obamacare Heavy, we really need to consider working out the details to allow the system to be functional here. Weekly Commentary For the Week of February 19, 2017 The Need for Tax Vigilance in 2017 By Tom Yamachika, President It's been a month into the legislative session. The sheer number of bills related to tax or public finance is staggering. It's much more frenetic this year than in any other year I've been in this position, and my sentiments are shared with some of the rules attorneys from the Department of Taxation who cover many of the same matters at the legislature as I do. This year, there appear to be many different and creative approaches to public financing. For taxpayers, that means that people are coming up with new ways for the government to get more out of your pocketbook. So, this is a year to be especially vigilant. Here are some examples of the tax bills moving through the system: The Honolulu rail surcharge extension bill is morphing into a strange and dangerous monster. One version of the bill now includes, in addition to a perpetual extension of the surcharge and an outright grab of part of the money to feed the Department of Transportation, a 12.5% increase in the general excise tax rate, from 4% to 4.5%. That means the tax on Oahu would go up to 5%, and people would start seeing a tax of 5.263% on their store receipts. The teachers' bill for education funding includes a whopping surcharge in the real property tax for any property that is residential and is not the owner's primary home. For a property on Oahu just shy of $1 million in value, for example, the tax due would go from $3,500 to $9,000. This bill can’t go into effect without a constitutional amendment, so lawmakers may be tempted to let the measure pass and let the voters decide its fate. Another bill would quadruple the conveyance tax, which is charged whenever real property as bought and sold. Under that bill, the top rate goes from $1.25 to $5.00 per $100 in price. There are several bills moving that would modify our individual income tax rates. Many would reinstate the 9%, 10%, and 11% rates that we just got rid of at the end of 2015. Some of these bills are tied to enhanced credits to provide poverty relief, but other bills just tinker with the rates. For some reason, the rates for corporations, estates, and trusts are all left alone, as is the 7.25% rate on capital gains for individuals. One bill would add hefty surcharges on traffic fines earmarked for law enforcement. The money is expected to go to law enforcement only, and wouldn't be available for K-12 education, natural resource conservation, homelessness, or anything else. It might not be called a tax, but the result will be more money from people’s wallets going to the government. And then, our department of transportation is continuing its quest to jack up the fuel tax (this year they want six cents more per gallon of gasoline), the vehicle weight tax, and the vehicle registration fee. The latter two taxes would add $65 or so to the annual registration cost of a small car…and that doesn’t consider the county weight tax and fees, which could get bumped up by county government. Last but not least, there is a substantial contingent of people who are so worried about Obamacare being repealed at the federal level that they want it written into Hawaii law. That would include an individual mandate, similar to the federal one, that is enforced through the Hawaii income tax system. All of this goes to show that you probably want to be watching the legislature like a hawk this year. Remember, you won’t be able to influence the result if you don’t participate in the process. To view the archives of the Tax Foundation of Hawaii's commentary click here.
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