Capricious tax hike
Adelup has been spewing out hysterical press releases, warning of payless paydays, furloughs and possible cuts in government programs and services unless the Guam Legislature succumbs to its proposal to raise business privilege tax from 4 percent to 6 percent. It’s supposed to make up for the $67 million drop in tax revenue as a result of President Trump’s federal tax reform.
What is more appalling other than holding public services hostage and summoning the furlough bogeyman is the administration’s bid to avert a revolution by audaciously attempting to condition the taxpayers into believing that the proposed BPT increase is only 2 percent. "Anything less than a full, but temporary increase of 2 percent will have deep implications on the future of health care and our road to economic prosperity," Gov. Eddie Calvo said in his last State of the Island address.
It is 50 percent!
And while BPT (also known as gross receipt tax or GRT) is levied on businesses, the ordinary consumers will ultimately suffer. The governor knows this. When he was the Legislature’s vice speaker and chairman of the finance and taxation committee in 2007, he opposed the Camacho administration’s proposal to raise GRT from 4 percent to 5 percent. “When it comes to a GRT increase of 25 percent, that cost will pass along ultimately to the consumer and there is an issue especially for many of these construction projects that are going on now” he said in an interview with KUAM. “You have a set price and that includes the GRT of 4 percent - if you increase to 5 percent someone's going to have to absorb it."
To assume that the emergency temporary tax hike will pave “our road to economic prosperity” is a comedic hyperbole. It is only intended to bridge the gap that will be created by federal tax cuts.
The ordinary households’ corresponding budget cuts will have to be factored into the calculation of projected revenue from this proposed tax increase. The expected surge in prices of commodities without a corresponding pay increase will prompt consumers to tighten their belts and prioritize their spending. They will stay home instead of dining out and watch NetFlix instead of going to the movie. When buying large ticket items, they may choose to shop online.
These household austerity measures will go on given that businesses are not likely to roll back their prices once the emergency GRT increase expires after the 24-month sunset period.
This is not the first time the government of Guam has been faced with a “financial crisis.” Raising taxes— if not borrowing on the bond market — is, habitually, its default solution. In 2003, the government raised the GRT from 4 percent to 6 percent to bridge a funding shortfall. The 50-percent GRT raise was eventually lifted in 2004. There was no recorded calculation of its positive impact on the economy; neither was there any indication that the GRT increase paved “our road to economic prosperity.”
It is tempting to support the governor’s proposal to lift the BPT exemptions granted to about 800 companies. After all, it’s a gold mine. The Office of Public Accountability said BPT makes up about 33 percent of GovGuam’s revenue, but exemptions cause the government to miss out on an average of $70.2 million a year in potential revenue. However, following the logical consequences of raising BPT by 50 percent, lifting the exemptions — especially for the wholesale industry — would yield the same results. There is no guarantee that the government would collect the entire $70.2 million, but there is certainty that prices will go up and consumers will buy less. When it comes to this option, the ordinary mortals always get the worst end of a bargain.
There is nothing that hasn’t been said about increasing tax. It should be done only when all other avenues to reduce spending have been exhausted and it should come with a fiscally responsible plan for how we will pay for all that spending. The Calvo administration, as it has previously boasted, had done this drill. Now do it again. Cut the spending. Roll back the salaries of politically appointed officials, better yet, eliminate unnecessary positions that have been capriciously created as a payback for political favors.
It’s just hard to convince taxpayers that “financial crisis” exists.
Mar-Vic Cagurangan is the publisher of the Pacific Island Times.