Higher taxes, higher prices, higher deficits
AT a recent public hearing conducted by the Senate Fiscal Affairs Committee on Tinian, those who testified on the tax hikes proposed by the House were already counting the chicks before even acquiring a hen that could lay eggs. No one mentioned anything about the possible consequences of imposing higher taxes amid an economic downturn. The proposed tax on imported betel nut and lime, for example, may simply compel chewers to buy local betel nut and lime. How will that raise additional revenue for this cash-starved government? There was also no mention of the reaction of taxpayers and consumers in other jurisdictions that implemented similar tax hikes.
And when will the Senate committee ask affected businesses and ordinary citizens to testify?
A sales manager earlier told Variety that the proposed tax hikes would negatively affect their staff, consumers and the government itself. He said if taxes go up, prices will also go up. “As a distributor we’re not going to eat up the costs — we’re going to pass them out to the market,” he added. A price increase will have a “ripple effect” on revenue, he said. “If the whole objective of this bill is to generate revenue [for the government], we feel it’s a misconception to think [that] businesses will make the same number of sales or more. It’s quite the opposite. As a matter of fact, we would make less, therefore the government will generate less revenue.” In a “worst case scenario,” if wholesalers make less money, they will have to reduce their work hours and/or reduce staff. Which, again, will mean less revenue for the government.
Another businessman told Variety that there are fewer people purchasing items from local stores. He said many people have either left the island for good or are planning to do so. “The [number] of people who go out and spend money is shrinking. It’s ‘great’ to tax things, but when there’s not that many people to collect the tax from, then it’s a moot point. With less population there’s less demand. You’ll be taxing something so small it won’t make a difference.”
All this is basic arithmetic, which even the proponents of the tax hike bills can’t deny.
So what’s the rush for reckless tax hikes?
Because, according to a House member, they have two choices only: raise taxes or layoffs. “I think we all agree that we don’t want to lay off anybody,” she said, referring to the employees of a government with several overlapping, redundant departments, divisions, agencies, bureaus, offices and programs.
But how can problematic tax-hike measures raise additional government revenue when the economy is down?
It doesn’t matter. The main point of these bills is to allow the government to retain its current and unsustainable spending levels. How? By including in its revenue projections the highly hypothetical “additional revenue” that the tax hike measures would supposedly produce. Hence, the government can continue spending money it doesn’t have. And more government vendors — CUC included — will be stiffed.
Here’s another not-so “secret” fact about the government’s finances. Any actual, additional revenue it can collect will go to its most pressing obligations — even if the additional revenue has been “earmarked” for another purpose. As everyone by now should know, the government’s most pressing obligations are payroll and the retirees’ pension. Two spending items that directly affect the welfare of the CNMI’s largest voting bloc.
Not surprisingly, no one on Capital Hill, including those who call themselves “fiscal conservatives,” has proposed measures to significantly reduce government costs in light of its persistent funding shortfalls.
Meanwhile, according to a resolution introduced recently by a more fiscal-minded lawmaker, the Senate president, “the CNMI’s economy continues to be in a deep recession and may not recover until our main economic industry, tourism, fully resumes…. Some businesses have begun to reduce their workforce by laying off employees as a result of low revenue collection and slow business activities.” The CNMI “must act now to prevent more businesses from shuttering their doors due to the lack of visitors and business activities at their establishments.”
Such action should not include tax hikes.
