A release from the Governor’s Office w Contact Phill Leon Guerrero at 929-7467 or Phillip.Leonguerrero@Guam.gov
GOP presents economic policy: cut the GRT in face of minimum wage increase
Republican senators will be introducing legislation to cut the gross receipts tax by five percent to 3.8 points. This reduction will mean that, for every $1000 a business makes, the business will pay $38 in GRT instead of $40, which is based on the current tax rate.
GRT reduction + minimum wage bill = Governor’s signature of approval
If this bill is passed and presented to the Governor simultaneously with the minimum wage bill, Governor Calvo will sign both measures into law. This balanced economic policy will lower the cost of business overall while increasing the buying power of the lowest wage earners.
GOP senators: Reduce the GRT to keep the minimum wage increase from backfiring:
1. AVOID PRIVATE SECTOR LAYOFFS: To reduce the cost impact of a probable minimum wage increase so that employers have less of a reason to lay off employees once the wage hike takes effect
2. LOWER PRICES: To give businesses the opportunity to lower prices and relieve some of the high costs of living that all Guamanians face
Legislation based on research and analysis
The Guam Economic Development Authority has been looking into the possible impact of a minimum wage increase since Governor Calvo raised the issue in his State of the Island address. The study was accelerated following Vice Speaker BJ Cruz’s minimum wage bill. Sen. Chris Duenas approached the Governor about the possibility of lowering taxes earlier this week as a way of offsetting the impact of a wage increase.
Governor Calvo — a former businessman — thought both solutions to improving the quality of life, if done together, could very well work. GEDA conducted a cursory review to determine, first, whether the possible increase in withholding taxes could wash out a possible loss in GRT revenues. Here are the findings:
1. Revenue neutral: Loss of tax revenue may be offset by gain in capital reinvestment in existing businesses or investment in new business opportunities.
2. Increase in purchasing power: The increase in minimum wage will increase, not just withholding tax revenue, but the disposable income of the wage earners. This, in turn, will translate to increases in economic activity that generates corporate income tax revenue and GRT.
Other factors are unknown until policies actually go into effect
It should be noted this analysis does not take into account economic factors that are impossible to know before the policies actually are implemented. For instance, an increase in wages will mean employees will have more income to spend; however, will they spend that increase? Will there be fewer of them making the increased wages because employers had to lay off some of them to afford the wage increase? When taxes are cut, businesses will have more net income; will that completely offset what they will have to pay for a minimum wage increase?
Positive & negative effects of each measure balances the other out
Governor Calvo does not believe, as Vice Speaker Cruz has reported, that previous minimum wage increases had no negative effects to businesses and, in turn, to Guamanians who are customers of those businesses. Prices have increased. Costs have increased. We surmise this is mostly attributable to the increase in the global price of oil. This has meant exponential increases in shipping 95% of everything we consume, including all the gas for our cars, and the cost to power our homes and offices.
There are companies that did have to release employees or cut back on inventory and services because of previous wage increases. What Governor Calvo does believe is that wages have not kept up with the higher cost of living and inflation. Many businesses have been carrying the burden of higher costs, and many businesses must be benefitting from a growing economy at this point. The increase in wages with a simultaneous cut in taxes provides the proper balance to raise output and grow the economy.
Transitive property of loc. economy: If more taxes = less demand, then less taxes = more demand
Increasing taxes curbs demand; we see that with the increases in sin taxes. If the inverse is accurate, then cutting taxes and raising wages may spur demand and purchasing.
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