The recent approval by the United States Congress of 10-year, $330-billion tax cuts (the largest in recent years and the third-largest in American history) put forward by President George W. Bush to bolster the sluggish U.S. economy is seen across many quarters in different perspectives.
Some see it as timely and significant to revive the ailing economy, and help stop the continued slide in the value of the U.S. dollar against major world currencies; others see it as a major political move to bolster public acceptance of the programme and policies of the Bush administration.
The Democrats believe the benefit to the economy of the tax cut, even though well intended, is doubtful as the bulk of the rebate is skewed toward rich Americans, and is increasing the levels of national deficit to historic levels.
In any progressive-tax system, higher contributors usually gain more in tax cuts, hence the greater proportion of the cuts goes to the rich. For tax cuts to result in the expected economic direction, the spread and yield of the cut should be broad and skewed selectively to provide substantial tax to the masses whose total aggregate demand will have significant impact on the economy.
The tax cut, according to President Bush, is expected to benefit the business community, too, as it will be able to write off new equipment purchases this year. In addition, the dividend-tax cut will increase the level of investment, a move already noticeable in the stock market as investors reap the benefit of having valuable stock. With improved investors’ confidence, it is expected the tax cut will create almost 1.4 million new jobs, strengthening the levels of consumer spending with the resultant certainty of impact on global economic activity.
Notwithstanding the cynicism and the skewedness of the tax rebate, the impact of this massive cut is enormous when considered from the point of view of the intended fiscal macroeconomics perspective the policy hopes to achieve. The president has reasoned that with historically low inflation and sustained employment, consumer confidence will improve as a result of the cut, resulting in increased demand because of higher consumer disposable income.
This optimism by President Bush is shared by many Caribbean leaders who feel the cuts will substantially encourage consumer spending generally, causing more Americans to take up leisure and vacation planning.
Toward this end, it is expected that the Bahamas, as well as Caribbean countries, will benefit incrementally over coming months and years as the rebate progressively gets into the hands of consumers. This optimism can be realized if the Bahamas continues to adopt sound macroeconomic and fiscal policies that will guarantee continued economic stability.
The Bahamas’ economic stability is essential to ensure relative political and social stability to support the high-level hospitality and personal safety of tourists in the country.
The budget presented to Parliament by Prime Minister Perry Christie last Wednesday is strategic and well-structured to continue providing and supporting the traditional sustained sound macroeconomic and fiscal environment of the Bahamas toward our long-term economic growth and development, in addition to gradually supporting our effort toward lowering or paying down our current high national debt.
With the national debt at approximately $2 billion, with increasing interest payment ($189 million according to the 2003/2004 budget proposal) approximately 18 per cent of our recurrent expenditure, there is no alternative to our nation’s economic management besides the containment of government deficit, which is the root cause of the increasing debt, without raising general consumer taxes, which will place a high burden on the citizenry, affecting our standard of living.
The national debt level at about 38 per cent of gross domestic product is significantly high and dangerous to our future economic growth, because a national debt above the benchmark 40 per cent to GDP will leverage and unleash the grip of debt burden. Therefore, the budget thrust of debt containment is commendable.
The combination of the Prime Minister’s prudent budget proposal and the tax cut in the U.S. is expected to post a brighter economic outlook for the Bahamas. A revitalized U.S. economy is the key to the realization and strengthening of Prime Minister Christie’s proposed budget.
This is important because the budgetary proposal did not substantially raise expectations of increased external revenue from sources such as tourism as against the previous year’s revenue.
Consequently, a U.S.-tax-cut-led economic recovery will invariably increase tourism arrivals in The Bahamas, thereby providing the proposed budget a reasonable safety net in case of unexpected eventualities that might cause possible budgetary variations.
The Nassau Guardian
