Tuesday, October 16, 2012

Pushed off the cliff

Recently there has been a lot of discussion about the government of Guam's fiscal position by politicians and media figures. I believe that one important piece of the puzzle has been neglected, which is that much of the shortfall in revenues has come from cutting taxes. From Fiscal Year 2000 to 2002, General Fund revenues declined by about 33%, fueled in part by the Bush Tax Cuts.

To avoid an excessive accumulation of new debt or severe cuts to services, Governor Felix P. Camacho requested an increase in the Gross Receipts Tax (now called the Business Privilege Tax). Much of the Guam Legislature signed on and lost their seats. I think a lot of people have taken the wrong lesson from this. Some people see the election for the 28th Guam Legislature as a referendum against the tax increase, but I see it as a reflection of weak leadership. The lesson of this year's primary election is that those who took a stand, whatever it was, did better than those who seemed to waffle. The people of Guam seem to respect those who stand on principle. But we must remember that the 27th Guam Legislature not only raised taxes, but also eliminated that tax increase and did not adequately explain why they changed position.

Even after the repeal, GovGuam still needed funding, so the government ran up deficits. The previous administration increased the accumulated deficit by over one hundred million dollars (this is from memory). Now the talk is about balancing revenues and expenditures. The lion's share of the Calvo administration's spending cuts proposal, Bill 507, are actually spending delays in the form of deferred repayment of the Government of Guam Retirement Fund's unfunded liability from 20 to 30 years. This does not change the long-run imbalance between revenues and expenditures, although it delays the day of reckoning.

Ultimately, this imbalance can and should be addressed and the best way is through increasing revenues. I know of many ways to raise enough revenue. Those who think it cannot be done are blinding themselves to the truth about the government of Guam's finances.

1 comment:

  1. Absolutely right, Julian. I have come to the same conclusion, but you put it much more eloquently.