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Government, taxation and debt

Published: Oct 17, 2013

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Dear Editor,

It’s become almost cliche these days to point out how many governments are broke beyond belief.

In The Bahamas, our “official” debt-to-GDP ratio might yet be below the statistical point of no return at 63 percent.

In Japan, where the country’s debt level already exceeds 200 percent of GDP, the government has to finance 46 percent of its budget by issuing more debt.

In the United States, the government adds a trillion dollars each year to the already unsustainable debt, and fails to collect enough tax revenue to cover mandatory entitlement spending and interest payments on its debt.

The theater playing out in the U.S. right now is irrelevant.  America’s debt challenge is not a political problem.  It’s an arithmetic problem.  Same in Japan and most of Europe.

However, most of these “rich” western nations aren’t doing anything about it.  It’s business as usual, and their debts are only getting bigger.

Poorer countries like The Bahamas don’t have this luxury of kicking the can down the road and delaying the inevitable.  They must face their financial reckoning now.

In some cases, like Cyprus, they resort to plundering people’s savings.  Or Argentina, where the government nationalizes everything that isn’t nailed down.

Others are falling back on more creative measures.

Puerto Rico, for example, is in the midst of its own epic debt crisis.  It’s gotten so bad that the Commonwealth has effectively been shut out of the bond market.

So last year, the government of Puerto Rico codified a number of special incentives aimed at attracting wealthy foreigners, particularly from the United States.

Puerto Rico’s tax agreement with the U.S. government allows U.S. citizens who are resident in Puerto Rico to pay only Puerto Rican tax, not U.S. tax.  According to the law, U.S. citizens who become residents of Puerto Rico are exempt from any taxation on their Puerto Rican-sourced ordinary income, dividends or interest, plus long-term capital gains.  And they’ll pay no U.S. tax either.

Malta is another example.  That country’s debt level is almost as bad as in Cyprus.  Yet the government of Malta has recently announced a new citizenship by investment program which could potentially raise billions of euros for the tiny country.

And just over the weekend, Antigua officially joined the ranks of Dominica and St. Kitts as the latest Caribbean nation to offer citizenship by investment.

Antigua is drowning in debt at nearly 100 percent of GDP.  And after spending nearly two years exploring this idea of raising cash by selling citizenship, the prime minister formally launched the program over the weekend.

Briefly, foreigners can obtain Antiguan citizenship by investing $400,000 in Antiguan real estate, or $1.5 million in a local business, or merely donating $250,000 to the government.

Other government fees total roughly $60,000 for a single applicant, plus an additional amount for each dependent; it’s possible to apply with your spouse, children under the age of 25 and parents over the age of 65.

Then there’s places like Turks and Caicos – which is in a “less desperate” debt situation, but is still taking proactive steps to raise revenue.

The T&C government has recently reintroduced a “permanent residency through investment” program whereby a foreigner can make investments between $300,000 (for real estate) and $1.5 million (for a business) and obtain permanent residency in the island nation.

Then there is our Bahamas government, which plans to ignore the disastrous lessons learned from our fellow island nations that recently tried to punish their productive citizens with bad policies like value-added tax (VAT) schemes only to see that their economies go from bad to horrible as a result of those anti-business immigration and tax laws.   Now, some of those same countries are changing course and starting to get rid of the very same xenophobic immigration and business deterring tax policies that our Bahamas government so foolishly thinks will help our economic situation.

Candidly, all of this is an encouraging sign, and it gives us a glimpse of how the post-fiat monetary system will be in the near future.

In the future, rather than governments being the enemy of commerce and liberty that treat citizens like milk cows, governments will become interested stakeholders forced to compete with one another to attract talented, productive people to move to their countries.

– Kevin P. Bethel

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