Can the Governor Raise Taxes Now?
By Tom Yamachika, President

“Governor Ige has emergency powers,” one alert reader said.  “Can he raise our taxes by himself?”

The answer appears to be “no, but.”

The Governor’s emergency powers relating to enforcement of existing laws are in Hawaii Revised Statutes chapter 127A.  Basically, this chapter says that the Governor has the power, during an emergency, to suspend laws that are getting in the way of emergency efforts.  He does not have the authority to decree new laws by himself.  That is the Legislature’s job, emergency or not.

So, there won’t be new tax laws, but…

What if the Governor said, “We have a bunch of tax exemptions and credits that are getting in the way of collecting revenue that we absolutely need for our government to function.  We are getting rid of them as of now.”

This is not a far-fetched scenario.  You may recall about a decade ago our lawmakers passed Act 105, Session Laws of 2011, which suspended twenty-three different General Excise Tax exemptions, including some for the contracting business and some helping those who sold tangible goods to the Federal Government, for a two-year period starting on July 1, 2011. 
(It initially started off as a five-year suspension, but testifiers almost uniformly blasted the bill, and lawmakers cut it down to two years.) 

The suspension lasted until June 30, 2013, but thankfully was not renewed afterwards.

The governor’s authority to order suspensions, according to the law cited in his emergency proclamations, is Hawaii Revised Statutes sections 127A-12 and 127A-13.  Section 127A-12 allows the governor powers relating to emergency management, but it does not once use the word “suspend” or any recognizable form of it.  Section 127A-13 allows the governor additional powers during an emergency.  Paragraph (2) allows the governor to relieve hardships and inequities, or obstructions to the public health, safety, or welfare.  Paragraph (3) allows the governor to suspend any law that impedes or tends to impede emergency functions.
Does a tax exemption or credit impede emergency functions?  Does one create hardships or obstruct public health?
 
Sure, a tax credit or exemption costs money, in the sense that revenue won’t be coming in the door quickly enough to pay off things we already are obligated to pay, such as salaries, post-employment benefit payments (such as the ones going to the Employees’ Retirement System or the Employer-Union Trust Fund that pays health benefits), rent, and bond interest.  If any fiscal cost of a tax credit or exemption can be seen as impeding emergency functions, creating hardships, or obstructing public health, then the same can be said of anything else the state is obligated to spend money on, or devote any effort to (because we need to pay the people who exert that effort).  So, at least to us, the justification for that type of suspension paints with too broad a brush and for that reason appears bogus.

In this time of crisis, we must have government functioning legitimately and we, the people, must have confidence that it is doing so.  Now is not the time to use specious arguments to justify tactics that likely would be a surprise to the legislators who granted the Governor those emergency powers in the first place.  We need to know that the tax money government spends and the other resources that it manages are handled fairly, wisely, and above board.  This is too important a matter for the government to fail us.

Taxing Medical Practice to Death?
By Tom Yamachika, President
By now everyone knows that we’re in a state of emergency.  There’s a virus spreading through the population and killing people.  There’s no vaccine, and no confirmed effective therapy such as drugs, so if you get sick from it there’s a chance that it will be game over for you.

Unless, of course, you are lucky enough to get good medical care.  Then you have a much better chance of surviving.

Medical professionals, however, are in short supply.  Like alcohol, hand sanitizer, face masks, and toilet paper.

Take the Big Island, for example.  In a video interview on State of Reform, a website focused on health care policy in the five westernmost states, Dr. Scott Grosskreutz, a radiologist and president of the Hawaii Radiological Society, mentioned that there is now a 44% shortage of physicians on the Big Island, and that a third of the doctors remaining are 65 years old or older.  ‘[P]rivate practice is basically on the verge of going extinct,” he said, because already low profit margins are being pressured by “the GET tax and the low Medicare reimbursements along with the high cost of providing care.”

He continues:  “We’re also reaching out to the legislature and stating that the general excise tax of 4.7% with the county surcharges basically strips a lot of these narrow-margin medical practices and puts them into the red. So, if the GET and the surcharges were applied to the hospital system, our understanding from talking to the Healthcare Association of Hawaii is that most if not all hospitals in Hawaii would be in the red and would have to either limit services or possibly close. So, if the state legislature agreed that the GET tax on hospitals and hospital-employed physicians is a bad idea because would it cause collapse of that portion of the sector, why would you apply it to community-based physicians?”

His observation about GET potentially killing off medical practices has basis in history.  All hospitals in Hawaii now are section 501(c)(3) tax-exempt nonprofit companies that enjoy an exemption from the GET based on their tax-exempt status.  A for-profit entity, HMC LLC, bought St. Francis West in Ewa Beach in January 2007.  It did not have an exemption from the GET.  It was in bankruptcy 20 months later.

Running a medical practice here in Hawaii does not seem to be an easy path to making tons of money.  Our State runs a few hospitals, for example, and its portfolio used to include Maui Memorial Hospital in Kahului.  It was losing tens of millions of dollars each year, so much money that state lawmakers, bucking fierce union opposition and lawsuits, succeeded in privatizing it in 2017.

For rural areas not conveniently near a big hospital, including entire islands without a hospital, their front-line defense against diseases in general must be the small businesses run by doctors who have taken up residence in the community. 

Certainly, they are not tax-exempt entities like the hospitals are.  They are ordinary people, or groups of people, out to feed their families like many of us.  Maybe a distinction needs to be drawn between the small rural practices described here and specialty doctors pulling down millions of dollars a year.  Whatever we may think of the latter, there may be a good case, from a public policy perspective, for giving some tax relief to the former.

Unless you like the idea of having doctors in rural areas being scarcer than toilet paper is now.

                                                                        Can Gov. Ige

                                                     Hike Our Taxes by

                                                               Himself?
 
                                                      By Tom Yamachika, President

This weekend, I got a very interesting question from one of our readers.  "Governor Ige has emergency powers," the questioner said.  "Can he raise our taxes by himself?"

The answer appears to be "no, but."

The Governor's emergency powers relating to enforcement of existing laws are in Hawaii Revised Statutes chapter 127A.  Basically, this says that the Governor has the power, during an emergency, to suspend laws that are getting in the way of emergency efforts.  He doesn't have the authority to decree new laws without legislative authorization.

So there won't be new tax laws, but...

What if the Governor said, "Folks, we have a bunch of tax exemptions and credits that are getting in the way of collecting essential revenue that we absolutely need for our government to function.  So, we are getting rid of them as of now."

This is not a far-fetched scenario.  You may recall in the 2011-2013 time frame we passed Act 105, Session Laws of 2011, which suspended twenty-three different General Excise Tax exemptions for a two-year period starting on July 1, 2011.  The suspension lasted until June 30, 2013, but thankfully was not renewed afterwards.

If, however, someone in the Administration gets the bright idea to do this, we at the Foundation will be waiting with countermeasures.  We'll be ready to go into the court system and have a conversation about whether the Governor's emergency power in fact extends that far.

We are very thankful to those of you who have donated some of your hard-earned money to the Foundation to help us prevent against grabs like this one.  We hope you agree that it's important to keep the Foundation alive for this purpose, among others! 

Stay safe, everyone!