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Op-Ed: Moving Our Ship Forward, part 4

“Crouch! … Hold! …Touch! … Engage!”

Such are the instructions barked out by the referee in a game of rugby when starting the scrum. For the unschooled in the game of rugby, a scrum restarts playing the game of rugby where each team’s strongest and skilled frontline players engage head-on to fight for control of the ball. Having an effective scrum gives a team the advantage offensively and defensively; hence often determines the outcome of a rugby contest.

The game of governing our territory is no different, only in this game we play against ourselves to meet our goals; and the barking orders for our key players (leaders) are “Look within! … Focus! … Plan! … Implement!” The going gets tough when we forget to set goals, or plan, or implement the plan to meet our goals; or let external factors over which we have little control overwhelm our psyches, or use them to rationalize our shortcomings as leaders.

We need to stop blaming the federal government for our economic woes, and give the political status issue some much needed rest — because — neither the unorganized and unincorporated political status nor the UN decolonization list deserves a place in the top 10 of our concerns. 

Our problem as I see it is two-fold.

First, we are not serious as a government about accomplishing the goals we have set up for ourselves (think development plans galore done in the past) and mis-utilization of funds we receive annually or have access to is a habit. 

Unless we utilize our financial resources at the optimum level (zero mis-utilization), and acquire all federal resources we are entitled to under the current political status to achieve our territory development goals, I see no point in blaming the federal government and lamenting our political status.

Much better use of our time is we make the effort to look in the mirror and ask ourselves what we can do to solve our problems. So far I have discussed health care financing, church and culture and their implications on the development of our territory. In this piece I discuss some aspects of the tax system, education, immigration and tourism, and their implications on the development of the territory.

Taxes

First, the consensus opinion from the local Chamber of Commerce and general business community is our current tax system is anti-private sector development and is keeping private investors away from the territory. 

The Economic Advisory Council (EAC) commissioned by the Governor Togiola offered a compelling case for reforming the corporate and personal tax system. In its report on Policy Reform, the territory charges a top corporate tax rate of 44% compared to 29% in Samoa; 18% in CNMI; 35% in Guam; 33% in New Zealand; and an average of 30% in the Asia Pacific region. In view of the differential of the top rates among our territory and its neighbors, given other factors, investors will not invest in the territory.

Second, on the personal level, the IRS code of 2000 — tax rates, table, and code provisions — is currently used in the territory. 

I am assuming the rationale for maintaining the 2000 IRS code is because it provides a basis for higher tax revenues as oppose to current tax years where tax rates get lower. 

In other words, ASG does the opposite of what the federal government does with respect to tax rates.

To further illustrate this point, the federal stimulus program called for cutting the payroll tax by 2%, which eventuated last year and continued this year; in return, ASG took the opportunity to slap its 2% wage tax on the territory’s workers (who were left un-stimulated economically) to pay its loans.

Moreover, by maintaining the 2000 IRC tax scales and provisions, workers in AS can only contribute $2 thousand to an Individual Retirement Account (IRA). The current maximum anywhere in the US is $5 thousand. Contributions to IRAs are tax deductible and earnings on IRAs are tax deferred. 

Having an IRA account also makes a major medical insurance policy more affordable by opting for a high deductible option (cheaper than low deductible options). Because IRA funds can be accessed to pay for medical expenses without IRS penalties, IRA funds can be used to cover the deductible and co-payment portions of the medical bills. And the tax savings from the deductible IRA contributions can help pay for the medical insurance premium.  

Third, the 2% wage tax is an unfair tax because it places the burden on formal employees, while giving others — the informal employees (paid under the table), independent contractors (bus and taxi drivers, tradesmen), business people living off their business income (not paid wages), clergymen (who don’t file tax returns), etc. — a free ride.

Fourth, the 1602 housing program should be a bonanza for the ASG treasury in terms of tax revenues. Assuming that 35% of the $37 million of the housing program went to contract labor, I wonder how much of the income tax revenues due ASG were actually collected.

Further, given that 15% of the cost of the 1602 program homes was provided by the developer and 85% by the federal grant, how will the properties be depreciated for income tax purposes? Unless this matter is clarified by the Tax Office and enforced accordingly (assuming only 15% can be depreciated), I can see these public assisted investments become tax shelters on steroids for the developers!

Fifth, there are tax revenue opportunities being foregone due to lack of a reliable system to register change of ownership of properties — land, homes, businesses, and other major assets. These assets were (still are) being bought and sold over the years and, one wonders how many of these taxable transactions had been collected on. Further, it’s not unusual for professional people to be compensated for their services with land or some other valuable property or asset — are these types of income being reported and collected on? 

Sixth, some of the highest paid people in the territory are clergymen. Some command intakes ranging from $4 thousand to more than $10 thousand a month. Like their counterparts in the states, the territory’s clergymen should file and pay income tax. They should also take advantage of the federal social security system that’s available to them so they can have a steady source of retirement at old age and Medicare insurance when they qualify at age 65. This should ease the backlog of younger clergymen without jobs and remove the burden from the congregation, which consists mostly of low income people.

Lastly, the Fono should level the playing field by amending the law that allows for their tax free allowance, and render the entire amount of the tax free allowance as part of their wages; therefore subjecting the $30 thousand allowance to both the minimum income tax and 2% wage tax. If these taxes are good enough for the general public to pay, they should be good enough for the lawmakers who made them, to pay. 

Education

We’re turning out high school graduates by the hundreds every year and most if not all are not job ready if there are jobs. The military has been the buffer over the years by taking in many of our graduates; but due to federal cutbacks, we may have a serious problem on our hands. I don’t know what the success rate is of the trade school at ASCC in turning out employable skilled graduates is, but we need to take this program to the high schools to shorten the route to employment.

Second, there appears to be a disconnect between our scholarship program and the territory’s employment and development needs. In independent Samoa, as in any developing or underdeveloped country, there’s a noticeable pipeline of students going abroad for post secondary and post university education, and returning as qualified students ready to be placed in government jobs or in the private sector. 

In the territory, scholarship students are not required to return. We are a dependent territory, yet we sport a scholarship policy of a rich donor country. This fantasy needs to end here and now. We need our best young minds to return and help develop our territory.

Third, the investment that we are making as a territory (ASG scholarship program) is deplorable and the end result reflects the investment loud and clear. Compounding the issue is the high percentage of personal disposable incomes that’s consumed by church and cultural obligations vis-`a-vis children’s education. We have some hard thinking and decisions to make as a government, community (church and culture), and at the family level.

Immigration & Tourism

I support the policy reform recommendations on immigration given in the aforementioned Economic Advisory Council. Further I believe the Visitors Bureau should be commended for keeping our port-o-call busy with cruise ships, and our related vendors happy with the business activity.

I remember a time when shoppers from independent Samoa would hop over and buy up loads of goods and return in the evening of the same day or the next afternoon. To the extent that immigration policy is the reason this lucrative business activity has stopped, it behooves ASG to put in place the necessary policy change as soon as possible.

The omnipresence of stray dogs and now cats, and trash is quite annoying and needs to be addressed once and for all. It’s not good for tourism and not safe for tourists and locals alike.

I say to myself that the first governor in the territory to solve this puzzle will go down in our history as the best leader the territory has ever had or will ever have. In my book, it just speaks volumes for a leader who minds the lowest of the low (subjects or matter) in the territory.

Development Implications

First, it is incumbent for the new administration to review the current tax system and enact the necessary reform policies to spur the development of the private sector and employment in the territory, and induce personal investments in education, health care, and retirement.

Appropriate policies should be enacted to ascertain that all taxable transactions, business or personal, are accounted for to maximize government revenues. The sales tax as a viable and fair source of government revenue should be included in this reform discussion.

Second, our most abundant and important resource is our people.

The government and families need to invest seriously in our children and develop them into educated and skilled workers, educators, health providers, managers, entrepreneurs, engineers, compassionate clergymen, and great political leaders of men. The territory needs to develop its human resource pipeline that goes both ways — out to be schooled and return to serve and help develop the territory. 

Third, our immigration policies need to be enforced to control our population, and reformed to allow skilled workers, investors, retail customers from neighbor islands that we need for the development of our private sector.

Fourth, ASG, Samoan Affairs, village councils, humane society, and relevant government agencies, and the general public should collaborate to rid this beautiful territory of trash and stray animals.

The Visitors Bureau has done its job by bringing in loads of tourists every month, and the National Parks has done its job by cutting trails through the national parks for tourist and locals to enjoy, and maintaining the parks. Let’s do our share of the work.

Fifth, often overlooked in business loan opportunities (offered by commercial banks or Development Bank of American Samoa) are local businesses with poor credit histories or none at all. 

Often these local folks have the will and basic skills in their areas of business to stick it out in the private sector but just lack that financial wherewithal to nudge their enterprises into a space and time where it can make all the difference in the world for them. But they are stuck in a hopeless vicious cycle of zero financial assistance from either the private financial institutions or ASG. It is incumbent on the next administration to assist this forsaken sector of the business community; for in so doing ASG may unleash the vast potential this class of local entrepreneurs possesses. And American Samoa will be better for it.

Finally, in any community there’s a class of people stricken with dire poverty; and American Samoa is no exception — although we like to tout the ‘breadfruit and banana on every tree’ philosophy, there are those, especially our elderly that are subsisting on the kindness of fate.

As this campaign season heats up and the candidates traipse the backyards of villages, they will come across these faceless people whom they only read or hear about in the news now and then, if ever.

To the veteran campaigners, it’s just another bump on the track to hop over every four or two years. For the “new kids on the block”, witnessing a third world country within a US territory for the first time can be a life changing experience. To all the candidates contesting the 2012 election, please remember those real faces and images of poverty. When you take your offices next year, do something about it.

In the end, we should all remember to look within and ask the mirror what we can do to help ourselves; come up with a solid and sensible plan of action; assemble the most qualified and skilled front-liners; assume the “scrum” position with purpose, then with conviction and all the passion we can muster attack our problems within the first three months of 2013.

Only then can we set the standard and pace needed for the rest of our journey to move forward.



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