Taxation 101
THE Saipan Chamber of Commerce and HANMI’s nine-page letter to CNMI leaders provided free and insightful observations and advice that all elected officials should consider. They need to be told that today’s “challenge is one we have faced before — [declining] government revenues, diminishing resources…for essential public services, and a prolonged stagnation of our commercial sector.”
But while “much of the world has recovered and resumed the road toward growth,” the CNMI “has not yet reached a footing that would give rise to our own recovery.” Because “tax revenue is only as high as the revenue and activity of individual businesses in the economy,” the CNMI government is not collecting enough tax revenue to fund its many obligations, foremost of which are government payroll and retirees’ pensions.
Many politicians, however, seem to believe that other people’s money is theirs for the taking, and that if they pass and implement tax hike measures then they will collect more revenue regardless of the state of the economy. This is wishful thinking.
As the chamber and HANMI have pointed out, “Adding costs to businesses through increased tax bills constrains the already limited resources within the business to hire employees, reducing Wage and Salary collections. These individuals who do not find employment or who have been furloughed do not have the resources to spend at other businesses to support secondary business activity compounding the impact on BGRT collections. These businesses, combined, have less means to import new goods and a smaller market to sell new goods, reducing Excise Tax collections.”
In other words, if you make it more expensive to do business in the CNMI, many businesses will reduce their costs, including personnel, which will mean less tax revenue for the government. Remember the ill-conceived e-gaming tax hike that lawmakers passed two years ago? They had to amend it when they were told that the affected businesses would have to lay off their employees and/or shut down.
So here we go again. But this time, more businesses and taxpayers are in the government’s crosshairs.
When businesses are permitted to succeed, the government will collect more revenue, the chamber and HANMI said. But when “one seeks to accomplish their ends at the expense of the other, the results benefit neither.”
This is easy to grasp. And we’re sure that many elected officials are eager to listen to sensible advice. But would they, knowing that there are other politicians willing to make unrealistic promises to voters, many of whom are willing to believe those who tell them what they want to hear?
Budgeting 101
IN their letter to CNMI leaders, the Saipan Chamber of Commerce and HANMI noted that the recent FY 2024 budget discussion focused on how much the Commonwealth needed to raise without asking the important question of why it needed to be raised. The government “needed to generate an additional $9.1 million because there was approximately $227.5 million not being generated by the private sector to sufficiently cover this amount under the current tax structure.” Why? Because CNMI businesses “are struggling to operate in this economy.” So the “solution” is to make it costlier to do business here? Bad math, once again, but “good” politics. Passing tax hike measures will allow the government to raise its revenue projection, and spend accordingly — regardless of actual collections.
Say the chamber and HANMI: Business can provide more government revenue without tax hikes, but they need to recover. However, tourist arrivals are “a fraction of what they once were only a short time ago.” This is “the central issue.”
Business “are suffering from the weight of the prolonged collapse of our only industry.” Moreover, a single tourism market alone — South Korea — “cannot shoulder the entire weight of the Commonwealth alone…. [K]eeping tourists from China, the CNMI’s second largest market, out of our economy, without a suitable and ready alternative simply limits business revenue, employment opportunities, and government resources.”
No problem, says the CNMI government. We’ll just tax you more.
Meanwhile, in the U.S., “companies are recovering from the losses of the pandemic through greater levels of international trade with China. This is especially true with the tourism industry in the mainland and Hawaii. Over the course of the year, the United States has engaged in a concerted effort, including policy changes, to rebuild the Chinese tourism market in states and cities across the country. U.S. Department of Commerce Secretary Gina Raimondo has recently concluded an extended official trip to China to rebuild travel from the U.S.’s fourth largest tourism market. Secretary Raimondo highlighted the importance of this engagement by remarking that if arrivals ‘just return to the 2019 levels of Chinese visitors to the U.S., that would generate $30 billion in GDP and more than 50,000 additional American jobs.’ ”
So no problem, just move to the states?
