Tobacco tax bill — which would reduce 2% wage tax — stalls in committee

Pago Pago, AMERICAN SAMOA — The Senate Budget and Appropriations Committee has agreed to keep in committee for now, for further review, legislation which seeks to increase the tobacco excise tax by 3 cents — which will help fund LBJ Medical Center operations — and reduce to 1% the current 2% wage tax, that is paid by all wage earners in the territory.

The decision was made Tuesday following a committee hearing in which ASG Treasurer Malemo L. Tausaga was the sole witness and voiced his support of the proposed law, which raised questions from senators — some of them sought for a complete repeal of the 2% wage tax and others believe the wage tax should be left as is.

Currently the tax is 33-cents per cigarette or cigar and for each 10 grams of smoking tobacco. The Senate bill, sponsored by Sens. Magalei Logovi’i and Utu Sila Poasa — the committee chair — will increase the tax to “36” cents per cigarette or cigar and for each 10 grams of smoking tobacco and 3-cents is earmarked for LBJ operations.

For the current 2% wage tax, it will be reduced to “1%” — with 50% of revenues collected earmarked for operations of the hospital and the other 50% to support the Off-Island Medical Referral Program, which is overseen by the medical center, according to the bill.

(Distribution of the 2% wage tax, according to the current wage tax law, is that 50% goes to off island referral program and the other 50% to LBJ operations.)

Responding to questions from his colleagues, Magalei explained the initial thought was to repeal the entire 2% wage tax — which is estimated to collect $3 million annually — but later it was changed to reduce to 1%.

The reasons, he explained is that the 3 cents alone — being proposed in the bill — is projected to collect only $1.5 million, which is not sufficient to provide the $3 million going to the hospital under the current 2% wage tax.

Instead of repealing the wage tax, it was reduced to 1% collecting $1.5 million and that plus the 3-cent hike in tobacco products would bring in another $1.5 million, with a total of $3 million for the hospital, he said.

He also explained the reasons behind the bill, saying that a Senate bill — approved by senators recently — would increase employee contributions from 3% to 5% for the ASG Employees Retirement Fund.

The proposed increase in employee contribution on top of the full 2% wage tax, would be a huge burden on workers as the amount taken out of their pay checks will result in less take-home pay, according to the Tualauta senator, who pointed out that reducing the wage tax will lighten the burden on ASG workers and at the same time still provide funds for the hospital.

He argued that the increase proposed in contributions from both ASG and employees is necessary to reduce the ASGERF unfunded liability. “We need to save the Retirement Fund” which is the only ASG pension plan for retirees, he said, and noted that employees — both in public and private sector — paying the 2% wage tax are complaining about having to pay this tax, when they are not even sick or going off island under the off island medical referral program.

He reminded the committee that the hospital also needs local funds for its federal Medicaid match.

Magalei also said that he was recently informed by the hospital’s chief executive officer, that LBJ has received $93,000 from the government through the wage tax and this is the first time that payment has come in early.

He thanked Malemo, if it’s his doing that prompted the payment to be sent to LBJ early in the year, instead of the hospital having to wait for a long time or not getting any money under the wage tax — which is collected by Treasury and then transmitted to LBJ.

At least three senators requested that the committee not rush into a decision on this bill. Sen. Satele Ali’itai Lili’o suggested repealing the wage tax and hiking the tobacco tax up to 6 cents.

However, he recommended keeping the measure in committee for further review and the majority of the committee members agreed. There’s no time frame as to when the bill will come up again for another committee hearing.