BJ Cruz proposes raising hotel occupancy and business privilege taxes to mitigate projected $145 million revenue loss
Guam – The chairman of the legislature’s Appropriations Committee has his work cut out for him before he resigns to run for public auditor. Sen. BJ Cruz (D) is offering solutions and an open door to fix a massive budget shortfall approaching Fiscal Year 2019.
Estimates suggest the Trump Tax Cuts have shorted Guam’s FY19 revenue collections landscape anywhere from $120 million to $160 million. More precisely, Chairman Cruz describes it as a $145 million shortfall.
“It’s real,” he said. “I’ve constantly said it’s real. But you can’t just figure that manna from Heaven’s going to fall. You know, it’s not like the cocaine that floats in, in drums and in boxes.”
So, barring pennies from Heaven, Cruz is proposing two new measures to make up for the pronounced paucity of projected public funds, a couple of offertories to get the conversation started with fellow budget setters.
Cruz’s Bill No. 314-34 (COR) seeks to hike the hotel occupancy tax from 11 to 15 percent. But, as Cruz well knows by now, businesses and their industry membership organizations are usually reluctant, even refractory, about taking that big a hit in one fell swoop. And he’s expecting pushback.
“And so I was thinking of raising it to 13,” Cruz said. “But some people were saying, ‘why don’t you raise it to 15? That’s what it is up in Saipan.’ And so the proposal’s 15. If they want to reduce it to 13…then, great! But first I have to shoot up and hope that someplace along that range it goes. Maybe the [Guam] Hotel and Restaurant Association comes in and says ‘15 is ridiculous; I don’t care what Saipan does; 15’s ridiculous.’ Then let’s step back to the 13.”
Whatever the case, the chairman said that with all the complaints about raising taxes on residents and their families, it’s time for visitors to shoulder some of the shortfall.
But he has more tax-ups in store for business. Cruz’s Bill No. 315-34 (COR) would raise the business privilege tax from four to five and a half percent. Both the hotel occupancy rate and the BPT increase would kick in October 1.
Realizing that no solution he proposes is going to be popular, Cruz issued the following statement to the media on Monday morning:
“I don’t like either of the bills I introduced today, but no one can cut their way out of a $145 million shortfall without catastrophic consequences. Government doesn’t deserve your trust today, but the math is simple. If we don’t replace some of the revenue we’ve lost, we will lose much more than money on October 1st.”
That said, the appropriations chairman is wide open to cost-cutting and revenue enhancement suggestions from his senatorial colleagues as well as the governor’s office. But he emphasizes that all budgetary planning must be based in reality, and that he’s already told the Bureau of Budget Management Research that its $120 million revenue shortfall projection is wrong.
“Others have been behaving like everything’s fine and talking about ‘surplus this’ and other kinds of things,” Cruz said. “Things are not fine. It really is short. In just the individual income tax, we’re losing at least $80 million dollars in corporate. Everybody knows that corporate’s got a 40 percent cut, and that’s costing us $121 million, and we’re losing some of the withholding, and so it’s real! And we’ve got to address that.”
A May 1, 2018 Rice University article at least partially backs Cruz’s assertion:
“The Tax Cuts and Jobs Act of 2017 could lead to a total corporate tax revenue decline of about 40 percent, but nearly 20 percent of that decline will be recaptured through increased personal income tax revenue, according to an analysis by an expert at Rice University’s Baker Institute for Public Policy.
Jorge Barro, fellow in public finance, outlined his insights in a new research paper, “Long-term Macroeconomic Effects of the 2017 Corporate Tax Cuts.” His study uses an objective methodology—a dynamic general equilibrium model—to project the long-term economic impact of the corporate tax cut by simulating business decisions that determine dividend issuance and equity valuation as well as household decisions that determine equity ownership and wealth distribution.”
Pacific News Center is still awaiting comment from Guam Hotel and Restaurant Association on how it views Cruz’s proposal to raise the local occupancy tax.