Blog

From the implications of Asia's economy to tax and budget analysis in Hawaii and the U.S., the Grassroot Institute blog offers news and commentary on a wide variety of topics related to free market principles and the defense (and propagation) of individual liberty. Come back frequently to see the latest from our staff, contributors, and Board of Scholars.

Penny for your Thoughts? No? How about 50 Million of Them?

You may all recall that if you go to the store in Hawaii and buy a bottle of your favorite beverage, a couple of other charges show up on your bill. One is a 5 cent deposit, which you can get back if you bring back the bottle for recycling, and the other is a one cent fee, which you don’t get back. (This fee was increased to a penny and a half between September 2012 and August 2015 because the recycling rate was too high – which I think is perverse but that’s another story.) Today, we’ll be talking about these charges, which are part of the Deposit Beverage Container Program. In late 2008, the Department of Health (DOH), which administers the program, needed an audit of six of the redemption centers it certified. What happened next is a classic example of the procurement process running amok, as found by the State Auditor in its Report 15-09, issued last month. DOH sent out a request for proposals, or RFP, which was designed to invite potential vendors to bid on the job. Only one vendor bid. Accounting Firm G said they could do it for $76,400…but they wanted to talk about it some more. In the ensuing months, Firm G figured out that they were the sole bidder, so they said they really needed to rethink their bid. That made DOH ask the State Procurement Office (SPO) for advice on whether they should re-do the RFP. SPO concluded that additional bidders might be interested in the changed job specifications, and recommended re-solicitation as a services procurement. Indeed, another accounting...

Fact Checking Some of the ‘Patriotism’ Arguments Made by Jones Act Supporters

The Garden Island published on Sunday, August 30, 2015, a response from a Jones Act supporter to Steven McMacken’s letter published Saturday, which was critical of the Jones Act and stated that it causes higher transportation costs to Hawaii. In her response, Suzan Kelsey Brooks, also of Lihue, Kauai, claims that the Jones Act helps Hawaii and repeats some of the usual canards promulgated by the Jones Act industry to defend the federal protections it enjoys. Brooks’ opposition to liberalizing the Jones Act – that is to removing or loosening Jones Act restrictions – is based upon her desire to ensure national security through maintaining a strong U.S. merchant marine. Typically, this line of argument in defense of Jones Act cabotage is based upon three legs: (1) sealift, (2) shipbuilding industrial base and (3) seafarers. However, as the great 18th Century British man of letters, Dr. Samuel Johnson, famously said (on April 7, 1775), “patriotism is the last refuge of a scoundrel.” Recommending that any recourse to national security must be viewed carefully. Brook asks several misleading questions in attempt to make her case. Books asks, “What would happen if . . . U.S. ships and merchant marine . . . withered away in the name of the “free market?” Actually, that has already occurred. Less than 1% of ocean cargo volume in the foreign trade of the U.S. are carried by U.S. flag ships (that includes both Jones Act ships and non-Jones Act foreign built U.S. flag ships). In domestic Jones Act trades, there are only 92 large oceangoing ships of the kind that are employed between the...

Plaintiffs Ask Court to Halt Race-Based Election Immediately

Preliminary injunction filed against state’s Native Hawaiians-only nation-building The plaintiffs in the suit against the State of Hawaii and its agencies to stop the racially exclusive election and constitutional convention to establish a native Hawaiians-only nation (Keli’i Akina, et al v. The State of Hawaii, et al) have filed a motion for a preliminary injunction.  The motion asks the court to put the election on hold until after a decision is reached. The group of four Native Hawaiians and two non-Native Hawaiians who brought forth the suit against the election are asking that all the groups involved—including OHA, Na’i Aupuni, and the Native Hawaiian Roll Commission—be prevented from engaging in voter registration or calling and holding elections while the case is ongoing. Keli’i Akina, Ph.D., President of the Grassroot Institute and one of the Native Hawaiian plaintiffs says, “It is imperative to stop draining public funds on a racially discriminatory process that the majority of native Hawaiians have chosen not to endorse, especially while the needs of native Hawaiians for housing, jobs, education, and health go underfunded. ” In the memorandum supporting the motion, the plaintiffs argue that they are likely to succeed on the merits of their claims that the election violates the First Amendment, Fourth and Fifteenth Amendments, and the Voting Rights Act. They further argue that to allow the election process to move forward would cause both the plaintiffs and the citizens of the state irreparable harm, citing the Ninth Circuit Court of Appeals opinion that, “[a]n alleged constitutional infringement will often alone constitute irreparable harm.” Working closely with the Grassroot Institute, the case is being...

Manufacturing a (Tax) Problem

Take a moment and look over this graph of effective tax rates in Hawaii, divided by industry. No points for guessing what type of business the government is currently trying to lure into the state. It’s almost startling. In every category except Research & Development, the effective tax rate is at least 12% and goes as high as 26%. In the category of R&D, however, a refundable tax credit can actually drop the rate to -0.6%.  This is what all the political eloquence about economic development in our state has wrought–a great tax rate for R&D operations. Too bad that the costs on nearly every other industry continue to make Hawaii an expensive place to do business. The information comes courtesy of the Tax Foundation, which compared data across states and ranked them based on effective tax rates. The point of the survey was to understand the state tax costs that are faced by real-world businesses. Unsurprisingly, the excise tax and  its multiple layers of taxation had a big impact–especially on manufacturing: More than in other states, Hawaii’s sales tax (called the General Excise Tax) applies to sales between businesses rather than just to the end consumer. As such, manufacturing machinery is taxed in Hawaii, so the cost of equipment and other inputs for manufacturing firms is significantly higher in Hawaii than in other states.   Hawaii imposes some of the highest tax costs in the nation on both new and mature labor-intensive manufacturing, with effective tax rates of 16.9 and 14.8 percent respectively, both over 60 percent above the median rates nationwide. The sales tax on manufacturing machinery is a...

What You Need To Know About Hawaii’s New Environmental Court

You may have heard that the Hawaii Legislature, after an intensive years-long effort by environmental groups, recently created a new court with specialized jurisdiction that could have a big impact on how property and business owners are treated by Hawaii’s courts. Known as the “Environmental Court,” this new court has been given the exclusive jurisdiction to hear most civil and criminal cases affecting the environment. Because Hawaii’s court is only just getting off the ground and is in uncharted territory (only one other state—Vermont—has a court with a similar statewide mandate), those who stand to lose the most in this new court—property and business owners—have many unanswered questions. Here’s what you need to know. Why A New Court? According to its proponents, the new Environmental Court is not expressly intended to change outcomes in environmental cases, and is merely designed to bring “consistency” to rulings in such cases, and to remove “improper influences” (supposedly by business and property owners) from judicial decisionmaking in such cases. Proponents point to two aspects of the new court: No New Judges First, it does not have separate physical facilities, and the judges who have been appointed to staff it are not new to the bench. Nor did the Judiciary request more money in its budget to accommodate the new court. Instead, the circuit courts have simply established a new division in each county’s existing court system, with a sitting judge, or judges, assigned to the Environmental Court. Many of these judges already preside over cases which involve issues that affect the environment, so are familiar with the subject matter, and this is, at...

The Clouded Judgment of Tax Authorities

The greed of tax authorities seems limitless. Revenue agencies will often seek to extend taxes well beyond what was contemplated when legislation was enacted, in the name of securing ever more money for government. Some even go so far as to extend taxes to services even in the absence of a tax that actually includes the item or service at issue. For example, Chicago recently instituted a “cloud tax,” a new extension of the existing “amusement tax,” and “personal property lease transaction tax” that will apply to streaming and cloud-based services. At a whopping 9 percent, the tax is expected to generate $12 million in revenue per year–or rather, innovative companies and consumers will lose $12 million every year. The Windy City’s tech community has complained loudly about the impact this discriminatory tax will have on the city’s innovation economy. Streaming customers and cloud-dependent technology companies have effectively been told that they are not wanted. What is the “the cloud”? Cloud computing is the storage and access of data with multiple redundant systems to ensure that the data is not lost, and access to programs over the Internet rather than on a local hard drive. In other words, the cloud is remote access and storage, and is simply a metaphor for the Internet. But why the seemingly sudden interest in taxing “the cloud”? As reported in the Wall Street Journal, “With sales of DVDs, video games and traditional packaged software slumping for years, more state and local governments are eyeing technologies such as streaming video subscriptions and cloud computing to help make up for hundreds of millions of dollars or...

Rising Chinese Frustration with North Korea

SHENYANG, CHINA—Public space is shrinking in China for discussion of “Western” views. But “contrary to the general crackdown, North Korea policy seems to be an exception,” a U.S. diplomat told me on my recent trip to China. One hears plenty of criticism of Pyongyang. Even official Beijing’s unhappiness with the Democratic People’s Republic of Korea is evident, though China continues to bankroll the Kim Jong-un regime. It’s a position some Chinese would like to change, including a scholar in Shenyang, a couple hours away from the Yalu by car. My colleague was careful not to directly criticize Beijing policy but advocated a much different approach. He noted that the two nations “still care about each other,” but now there are a “lot of problems between the countries.” The most important issue, no surprise, is nuclear weapons. China supports denuclearization of the Korean peninsula. This is the “worst disagreement between them.” Second is economic development. “China insists on reform of the whole economic and political system,” explained my friend. Beijing’s objective is to “transform North Korea.” The DPRK government fears such change. Issue number three involves bilateral commerce. “China wants to have normal trade with North Korea,” but the DPRK expects to receive goods even if it does not pay. This has “caused great loss for China and for companies in China.” The fourth concern is refugees. “Many North Koreans have fled to this part of China,” he said, forcing Beijing to “think about how to deal with the issue.” So far, the People’s Republic of China has returned refugees when caught, sparking sharp international criticism. Coming in at fifth...

Jones Act Opposition from the Carolinas

The Aiken Standard (Aiken, South Carolina) published a letter to the editor addressing the 2016 Federal Budget currently in process in the Congress and proposed the Jones Act should be addressed in the budget. The 2016 federal budget will be for the federal fiscal year from October 1, 2015 through September 30, 2016. The writer, Gil Mullins, from a distinctive conservative perspective, proposes the Republican-led Congress adopt a 2016 federal budget based upon the 2013 continuing resolution – popularly known as the sequester – and add the $74 billion in defense appropriations proposed in the President’s 2016 budget submitted to the Congress on February 4, 2015. As the writer acknowledges this will probably bring a Democratic caucus filibuster in the U.S. Senate – which the writer welcomes and believes the Republicans will win and propel them to victory in the 2016 elections. There have been Jones Act critics in the Carolinas since the 1990’s due to the lack of dry bulk carriers in the Jones Act fleet to provide transportation of domestically produced feed grains to the hog and chicken farmers there. Instead, the farmers have been importing foreign feed grains to take advantage of the international shipping fleet. This is an example of import substitution – due to a lack of domestic transportation. Although the writer is impassioned in his views, it remains doubtful that the Jones Act will be addressed in the 2016 federal budget. However, the letter does express the conservative frustration with the Republican led Congress and the longtime dissatisfaction with the Jones Act in the Carolinas. A key excerpt: Prepare now for a government...