"Significant Impact": Guam Tax Commission talks Trump tax plan
Members of the Guam Tax Commission met yesterday to discuss the contents of a report aimed at exploring the potential impacts of President-elect Donald Trump's newest proposed tax plan.
The report was compiled by the office of Sen. Michael San Nicolas, who also serves as the chairman of the legislative committee on finance and taxation. The report focused on proposed changes to the tax code that would affect revenue-generating provisions of the Individual Income Tax, the Corporate Income Tax and the estate and gift taxes.
According to the report, while Trump's latest tax plan somewhat reduces the potential revenue losses that federal agencies were preparing for under his administration, the plan would still result in a marked reduction in overall federal revenue.
"So in a nutshell, we have a president-elect whose political party is in power in the House and the Senate and if his most recent proposed tax policy changes begin coming to fruition in the government to come, it's going to have significant impact on our territory," San Nicolas said.
A proactive approach
San Nicolas explained to the commissioners that the intent behind the report was to adopt a more proactive approach to address the potential changes that could have a serious impact on the local government.
"Due to the linkage between the Guam Territorial Income Tax and the Federal Income Tax, if the Federal Income Tax is changed in the way suggested by [Trump's] plan, the government of Guam will lose Guam Territorial Income Tax revenue," the report read.
The report cited the Tax Policy Center, which estimated the potential in lost revenue for fiscal year 2017 at about $126.4 million. According to the report, that could amount to a loss of around 32 percent of Guam Territorial Income Tax revenue.
In an effort to remain positive, the report also looked at potential measures that could help to counterbalance the estimated losses.
"The revenue estimates are based upon a static analysis and would, thus, tend to overstate the cost of the tax cuts somewhat," the report stated.
However, even after using three different models, one of which anticipates increases in revenue based on improved economic performance as a result of reduced individual income tax rates, the report showed that the overall net budget impact of the tax changes at a minimum loss of $98.1 million and a maximum loss with offsetting measures at $110.7 million.
"Regardless of the basic model, the additional cost of the proposed Trump tax cut is not fully offset by increased economic activity," San Nicolas read from the report. "The cost in the near term will be approximately $100 million."
The report admitted that deviations in demographics and other economic factors could result in differing results and noted that Trump's administration has not yet formally approved of any particular tax plan.
Regardless, San Nicolas explained that yesterday's discussion was important because of the huge impact of the mere possibility that Trump's tax plan could come to fruition.
"If the U.S. Federal Government were to enact the most recent proposal by President-elect Trump, the cost would be $6.2 trillion over 10 years," the report concluded. "Excluding the estate tax change, which would not apply to Guam, a comparable impact would be $2.2 billion for Guam. Given the recent history with increasing deficits without such a change, it seems likely that this would not be affordable for the government of Guam."
During open discussion of the issue among the commissioners, Sen. Benjamin J. Cruz, who serves as the vice-chair of the committee on finance and taxation, said he knew with confidence that GovGuam's current budget would not be able to support itself if the losses in revenue estimated in the report came into effect.
"Even if it was only 10 percent of what you suggest, that would be more than the budget could possibly handle," Cruz said. "This is frightening."
According to Cruz, losses as they are presented in the report would defund most of the welfare services and programs that the government currently operates.
In answer to the apparent quandary, Cruz said one solution might be for Guam to de-link from the federal tax code.
"The only thing that might save (the budget) is if we delink and don't do the earned income tax credits (EITC), the offsets of the EITC could (offset some of the losses), but all you're doing is making a poor family that's receiving EITC more poor because they don't have EITC, Supplemental Nutritional Assistance Program (SNAP) or welfare," Cruz said.
According to Post files, GovGuam has had the ability to de-link from the federal tax code since the passage of the Tax Reform Act of 1986 – a major overhaul of the tax code that occurred under President Ronald Reagan. However, despite several attempts from various local leaders to completely de-link from the code, Guam's tax laws continue to mirror federal guidelines.
Late last year, Sen. Michael San Nicolas revived efforts to de-link from the federal code with a newly formed Guam Tax Commission. According to the senator, federal changes to the tax code are tuned to the needs of the United States and may not necessarily reflect positively for Guam. The efforts of the commission have been limited to determining whether de-linking could prove detrimental for Guam. As it stands, feedback from federal officials have indicated that no major impact to Section 30 funding or Guam's tax exempt bonds will occur.
Commissioners during yesterday's meeting did not appear hopeful that GovGuam would be able to completely offset the report's estimates, and instead even suggested that the $126.4 million in fiscal 2017 losses might be a "best-case scenario." They proposed additional studies and reports in order to address the unique concerns that Guam's economy has in regard to changes in Trump's proposed tax plan and to the possibility of de-linking.