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.

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...

Relativity Media: E + MC = 0

The formula in today’s title is not related to Einstein’s famous theory. Rather, it’s the story of anExisting business, always needing more cash (or more tax credits) and it now finds itself with zero and it’s in bankruptcy. You may remember Relativity Media from its efforts at the Hawaii Legislature in 2011 and 2012 to sweeten the existing motion picture and television production credit, and to enact a separate credit for building production infrastructure, specifically studios on four of the Hawaiian Islands. A number of its presentations before the Legislature seemed to be based on the theory of “shock and awe.” In 2011, former President Bill Clinton submitted an open letter to the Hawaii Legislature endorsing Relativity’s proposals. “The Shangri-La/Relativity commitment to build the most environmentally friendly stages in existence, coupled with the economic benefits of this bill and Hawaii’s timeless appeal, will make Hawaii the most attractive place in the world to shoot a film,” he said. Relativity also flew in Hollywood personalities to testify at legislative hearings, and threw an invitation-only reception at the Mandalay restaurant in downtown Honolulu. And if that wasn’t enough, some legislators received gifts. Relativity gave out a total of thirty-five DVD sets to legislators and staffers, and one representative even accepted an iPad2 from Relativity but returned it to the company later in 2011. At that time Relativity reported that it spent $10,150 on the gifts. This, of course, was all part of a grander master plan. Relativity dove into the television, digital and sports agency industries. It forged a partnership in China with Huaxia Film Distribution Co., and launched a fashion...

The Growing Support for an Article V Convention of the States

One reason Donald Trump is finding support for his presidential bid is that so many people are fed up with Washington and its inability to get things done—that is, get things done the way the fed-up people think they should. Some of that sentiment is also driving a reexamination of an Article V Convention of the States. Most Americans know that the Founding Fathers tried to set up a system of checks and balances, but that issue is usually discussed in relation to the three branches of the federal government imposing a check on each other. But Article V of the U.S. Constitution creates a check and balance between the states and Washington. If two-thirds of the states apply to Congress for a convention for the purpose of amending the Constitution, Congress must convene it. If the convention of the states is able to agree upon a constitutional amendment, and if three-fourths of the states ratify the amendment, it would become part of the Constitution. There is a growing interest among state legislators who believe that Washington has ignored some of its constitutional responsibilities and far exceeded its allowable reach with respect to the states. An Article V convention might restore some of the historic balance. The country’s top expert on an Article V Convention is Rob Natelson, who used to be a law professor teaching constitutional law. He is now with the Independence Institute in Colorado. Natleson points out that there have been numerous multi-state conventions to consider similar issues, and that the process is pretty-well established. Participating states would send their representatives to the convention. Only the...

PBS News Hour Reports on Puerto Rico’s Jones Act Woes

The PBS News Hour posted to their website an article by their award winning correspondent Chris Bury (formerly with ABC’s Nightline) regarding the impact of the Jones Act on Puerto Rico in the context of the Commonwealths financial crisis. The video story appeared on the Thursday night (August 13th) PBS News Hour broadcast. There is an error in the article’s title when it refers to a 1917 law. Whoever wrote the headline mixed up their Jones Acts. The maritime cabotage provisions are found in Section 27 of the Merchant Marine Act of 1920 and commonly known as the Jones Act. The 1917 law is a reference to the Jones–Shafroth Act enacted March 2, 1917—also known as the Jones Act of Puerto Rico, Jones Law of Puerto Rico, or as the Puerto Rican Federal Relations Act of 1917. The act superseded the Foraker Act (the Organic Act of 1900) and granted U.S. Citizenship to the people of Puerto Rico. It also created the Senate of Puerto Rico, established a bill of rights, and authorized the election of a Resident Commissioner (previously appointed by the President) to a four-year term. The act also exempted Puerto Rican bonds from federal, state, and local taxes regardless of where the bond holder resides. Key excerpt from the interview: The Jones Act, which requires everybody in Puerto Rico to buy goods from an American-made ship with an American crew, limits business owners and jacks up prices. PBS NewsHour correspondent Chris Bury went to Puerto Rico to understand how citizens are coping with the economic crisis. He spoke to Joel Franqui, owner of a fair-trade store...