Editor's note: The letter refers to Public Auditor Benjamin Cruz's summary of an audit report on government of Guam spending on legal fees and costs in six years, which added up to $78 million. Most of the Guam airport agency's close to $18 million spending did get reimbursed by one of its main tenants.

An Aug. 20, 2019 news story in The Guam Daily Post reported that the government of Guam spent $78 million of your tax dollars on legal fees. 

It is so easy to spend someone else’s money. Everyone you know talks about how the prices of everything has increased substantially in the last few years. But very few, especially in GovGuam, seem to know that all the money the government spends is reflected in the price we pay for almost everything.

But how is that possible?

To understand how that works, we must look at where the government gets its money.

All revenue that flows into GovGuam comes in the form of taxes from the private sector, or from fees which are a tax on the user. An example of this is a charge for a driver’s license. It is essentially a tax on the user.

For the private sector and taxpayers to pay those taxes and fees, prices must be increased to cover those costs. This means increased prices cover all the mistakes managers make, any costs that are incurred when agencies hire expensive lawyers to literally sit in on all their meetings, or when you are forced to subsidize some activity you did not agree to but which the government thinks you should be forced to. All of the activities of GovGuam are reflected in the prices of what we buy.

Let’s say the government collects $4 million through a 4% gross receipts tax. And then a “temporary” 5% GRT rate is passed by the Legislature and the government has $5 million in revenue from the higher tax or $1 million more. In economics, this is called the obvious results. But economics demands an understanding of the not-so-obvious. And that would demand that we ask the question: “If the government did not take the extra $1 million from us in the form of price increases, what would we have done with the money we were allowed to keep from our labor?” If you said, “we would spend it, expanding the economy – and tax revenues to the government – each time it turns over,” you get to go to the head of the class.

No evidence Trump tax cuts cost GovGuam $68M

Then we hear over and over – without any evidence of course – how the devastating Trump tax cuts have cost the government $68 million in tax revenues so the government seizes on an opportunity to increase taxes. No one publicly asks this question: “If the government could not forcibly take – collectively – $68 million from the taxpayers, what happens to that $68 million? Where does it go?” It doesn’t disappear; it is still in the economy turning over and over each time it is spent, expanding the economy.

Not only did Presidents Kennedy and Reagan prove that tax cuts increase revenue; the Trump tax cuts worked the same way. The first six months after the cuts were made law, revenues to the government were up by billions. Why? Because tax cuts stimulate economic activity and entrepreneurship. Reagan took the top tax rate of 70% to 28% and revenues exploded. The politicians, however, managed to spend it all but that is another story.

Lastly, you must have certainly heard the often-repeated myth that the recent tax cuts favor the rich. If you are talking to someone who knows what they were, ask them: “What makes you say that?” They will articulate the large reduction in corporate rates. Then ask a series of questions to help educate: “Do you have a retirement plan where you work? Whether government or private, where does the plan sponsor invest that money to help fund your retirement? Most people know they invest it in the market, so through your account, you become a stockholder in all those companies that make up the financial market. So to understand your point, does this mean you want to have less in your account by making those companies less profitable?”

Lesson completed.

Carl Peterson is a longtime certified financial planner who was inducted into the Guam Chamber of Commerce Hall of Fame as the 2015 individual laureate.

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