THERE is a lot of discussion from political leaders, commentators and various media figures about the gap between revenues and expenditures of the government of Guam. The administration seems to indicate that the deficit this year would be about $40.4 million. The lion's share of the "cuts" which the administration has recently proposed change the timing of spending, rather than eliminating it. That being said, GovGuam is having near-term financial challenges and that means it is not necessarily a bad idea to change when expenditures will happen. If a person loses her job, she would hope that her creditors would be willing to delay when bills come due, so she can pay them when she has a new job. With unemployment around 11.8 percent, delaying cuts to expenditures seems reasonable.

The fact remains, however, that there is a major imbalance and there seems little appetite to take on additional debt. Keynesian economics tells us that slashing spending depresses output more than tax hikes.

If GovGuam wants to preserve more economic activity, it should balance out well-targeted spending cuts with a healthy dose of tax increases.

If $40.4 million is the total deficit, it could easily be closed by raising the Business Privilege Tax (BPT) by 1 percent, which could yield up to $52 million. There are several reasons for doing this. First, Guam is a low tax jurisdiction, so it should not hurt Guam's competitiveness much to increase the BPT moderately. Second, taxing consumption favors investment, which Guam could certainly use. Third, an anticipated increase in the BPT would temporarily ease Guam's relative credit conditions. Even if savings need to be greater, a higher BPT would go a long way in making up the difference.

There are other ways GovGuam could raise sizeable sums. The Organic Act allows GovGuam to enact an income tax surcharge of up to 10 percent, which could mean another $39.4 million. Guam has very low property taxes and an increase of 0.1 percent on land would raise another $6.1 million; and an increase of 0.1 percent on improvements would raise another $5.3 million. The tax on improvements might be somewhat worse because it is a tax on investment.

The sin taxes on alcohol and tobacco products could be hiked, and there are loopholes in the BPT and the Real Property Tax which could be closed to raise additional revenue. Eventually, extra revenue could be raised by reforming the Qualifying Certificate (QC) Program, although current QCs would probably not be affected because a QC is a contractual agreement.

As for some temporary fixes, I believe the 1993A General Obligation Bond could be refinanced with the GMH and GWA loans into a 30-year bond, and the 2009 Section 30 Bond could be refinanced for a total average annual savings of $8.3 million over the first five years.

Ultimately, GovGuam needs to deal with the long-run imbalance between revenues and expenditures. Raising taxes would be a step in the right direction and far preferable to severe cuts in government services.

Julian Janssen,
Tumon