Education

The Grassroot Institute of Hawaii supports education reform that is sensitive to the varying needs of children, and with full respect for the right of parents to direct the education of their children . This includes the promotion of the many forms of school and educational choice such as c harter s chools, academies (e.g., Performing Arts, Native Hawaiian Immersion, & STEAM: Science, Technology, Engineering, Arts & Math), h omeschooling, distance learning, various educational voucher options, public-private options, etc.

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...

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...

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...

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...

Krugman Acknowledges the Role of the Jones Act in Puerto Rico’s Troubles

Economist and New York Times columnist Paul Krugman isn’t someone you would ordinarily expect to see taking aim at the Jones Act, but the Act’s role in Puerto Rico’s economic troubles is too obvious to be denied. In a recent article, Krugman refutes the idea that Puerto Rico is about to become America’s version of the Greek crisis, but doesn’t hesitate to lay part of the blame for the island’s high transportation costs on the Jones Act: Puerto Rico’s fiscal crisis is basically the byproduct of a severe economic downturn. The commonwealth’s government was slow to adjust to the worsening fundamentals, papering over the problem with borrowing. And now it has hit the wall. What went wrong? There was a time when the island did quite well as a manufacturing center, boosted in part by a special federal tax break. But that tax break expired in 2006, and in any case changes in the world economy have worked against Puerto Rico. These days manufacturing favors either very-low-wage nations, or locations close to markets that can take advantage of short logistic chains to respond quickly to changing conditions. But Puerto Rico’s wages aren’t low by global standards. And its island location puts it at a disadvantage compared not just with the U.S. mainland but with places like the north of Mexico, from which goods can be quickly shipped by truck. The situation is, unfortunately, exacerbated by the Jones Act, which requires that goods traveling between Puerto Rico and the mainland use U.S. ships, raising transportation costs even further. Krugman goes on to attribute the lack of a full Greek-style crisis to...

The Jones Act and the Crude Export Ban

The energy information website E & E Publishing Inc. reports on the linkages between lifting the 1970’s crude petroleum oil export ban and Jones Act relief for the oil industry. The author predicts based upon those whom he interviewed, that as the US Congress comes closer to serous consideration of lifting the crude export ban, the linkages to the Jones Act will become more apparent. Key excerpts: With a growing body of research backing their economic and security arguments, supporters of ending the crude export ban are growing increasingly confident about the legislative prospects of repealing what they call an antiquated policy. But there’s another aspect of the export debate that has gotten less attention — one that requires lawmakers to tread carefully to avoid stirring up long-simmering discontent over a statute that predates even the 1970s-era crude export ban. That law is the Jones Act, which was signed in 1920 by President Woodrow Wilson and requires that commodities move between U.S. ports only on American-built and -owned vessels operated by crews that are three-quarters U.S. citizens. A host of industry sectors have long complained about the costs the Jones Act imposes on intra-country shipments, but the clout of the domestic shipbuilding industry and coastal lawmakers has kept the law intact. With the domestic oil and gas boom, the familiar Jones Act complaints have resurfaced in recent years, exacerbated by the lack of infrastructure for moving energy supplies to market. The Jones Act prompted a mini war of words last year between refiners and shipbuilders, when Charles Drevna, who was then president of the American Fuel & Petrochemical Manufacturers,...

Post-Employment Benefits Are King

We’ve earlier written about State pensions and other post-employment benefits. We’ve mentioned that the liabilities are potentially huge, but we haven’t yet spoken much about constitutional protection. The Hawaii Constitution says, “Membership in any employees’ retirement system of the State or any political subdivision thereof shall be a contractual relationship, the accrued benefits of which shall not be diminished or impaired.” This provision dates from the Hawaii Constitutional Convention of 1950, where delegates were concerned that the government had some funding lapses in the past and might be tempted to do so again. In 2007, the Supreme Court of Hawaii held that our constitution protects not only benefits accrued under the Employees’ Retirement System (ERS), but also the funding sources for those benefits. In 2010, that court held that this constitutional protection also extended to benefits under the Hawai‘i Employer–Union Health Benefits Trust Fund (EUTF). In other words, state government employees who have worked for the state and have accrued benefits under ERS or EUTF are guaranteed to have those benefits and are guaranteed that those benefits will not be reduced or taken away. Constitutional protection for these benefits might seem like a good thing. After all, we want to take care of those loyal, dedicated public servants who have sacrificed their lives for the well-being of our people, right? But let’s take a look at the depth of what constitutional protection really means. Recently, there was a case decided in May of this year by the Supreme Court of Illinois. Illinois has a public pension system and a constitutional provision protecting of pension benefits that is worded similar...

Third Greek Bailout Is Not the Charm

Nearly a month ago Greek voters rejected more economic austerity as a condition of another European bailout. Today Athens is implementing an even more severe austerity program. Few expect Greece to pay back the hundreds of billions of dollars it owes. Which means another economic crisis is inevitable, with possible Greek exit (“Grexit”) from the Eurozone. Blame for the ongoing crisis is widely shared. Greece has created one of Europe’s most sclerotic economies. The Eurocrats, an elite including politicians, journalists, businessmen, and academics, determined to create a United States of Europe irrespective of the wishes of European peoples. European leaders welcomed Athens into the Eurozone in 2001 even though everyone knew the Greek authorities were lying about the health of their economy. Economics was secondary. Unfortunately, equalizing exchange rates cemented Greece’s lack of international competitiveness. Enjoying an inflated credit rating, Greece borrowed wildly and spent equally promiscuously on consumption. Greece could have simply defaulted on its debts. However, Paris and Berlin, in particular, wanted to rescue their improvident banks which held Athens’ debt. Thus, in return for tough loan conditions most of the Greek debt was shifted onto European taxpayers through two bail-outs costing roughly $265 billion. Greece’s economy has suffered, and the leftwing coalition party Syriza won Greece’s January election. Impasse resulted at the end of June as the second bailout expired. Athens denounced its creditors for insisting on repayment. Prime Minister Alexis Tsipras criticized “ultimatums, blackmail and fearmongering.” But writing off Greek debt would require European governments to confess their financial folly to their taxpayers. Restructuring Greek debt also would set off similar demands from other heavily...

Thanks to the Jones Act, Livestock Farmers Are Importing Foreign Grain

The Cato Institute posted an op-ed from their Senior Fellow on Trade Policy Studies, Daniel R. Pierson, reporting on the problems being encountered by the livestock industry in the South Eastern U.S. in sourcing feed grains. Pearson reports that the livestock industry in the Carolinas have built a large grain import terminal at Willington, N Carolina, and are importing foreign feed grains largely due to the lack of domestic Jones Act. dry bulk ocean shipping capacity. This is the same issue that spurred the founding of the Jones Act Reform Coalition (JARC) in the mid-1990’s and the recruitment of Robert “Rob” Quartel as the organization’s president. Pearson refers to a 2011 report “Comparison of U.S. and Foreign-Flag Operating Costs” prepared by PricewaterhouseCoopers LLP (PwC) for the U.S. Maritime Administration (MARAD) which found that the U.S. flag ship operating cost is 2.7 times that of international flag shipping. While that seems like a big number the “ship operating cost” is limited to certain specific costs (crew, storing, lubes, insurance, maintenance & repair, dry docking). It does not include voyage expenses — such as bunkers (fuel), port costs and cargo handling (stevedoring) — equipment costs (container and chassis fleets) in the instance of liner container shipping, and ship capital cost. The report indicates the differential between U.S. and international ship operating costs is about $4.0 million per ship per annum. Pearson doesn’t address the primary driver of Jones Act shipping, which is the extraordinarily high cost of domestic ship construction required by Jones Act cabotage. He also ignores the legacy manning on board self-propelled U.S. flag ships, which has resulted in...