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Pinder: Bush tax cuts extension good for Bahamas

Bahamians should not celebrate an economic recovery unless the United States’unemployment rate falls below 9 percent by mid-next year, and the U.S. tax regime will impact this directly.

TellingGuardian Businessyesterday that the United States economically remained”very fragile”, international tax specialist and Member of Parliament for Elizabeth Ryan Pinder said the recent extension of the tax cuts introduced under U.S. President George W. Bush should bode well for The Bahamas, reducing uncertainty among U.S. businesses and consumers and ultimately resulting in more disposable income for a broad section of Americans.

“What is good for The Bahamas is that if these tax cuts were not extended there would be a significant shock to the United States’economy, and some question whether it would have been able to withstand that, and whether it would have caused stagnation or even a little more receding in the U.S. economy,”said Pinder.

Due to The Bahamas’dependency on the United States such stagnation would have had a negative impact on travel to this country. Pinder added that consumer confidence would have declined in the U.S., and”as we know we need to have a confident consumer and confident market in order for the economic recovery to happen.”

According to Pinder, small business drives the U.S. economy and recent statistics show that small businesses in the U.S. are still not hiring or creating new jobs. He added that as those small businesses make their financial plans, including hiring, any uncertainty that may have existed in terms of taxes and financial planning should be reduced with the continuation of the Bush tax cuts. He hoped it resulted in hiring in this key sector.

“Once we see the private sector start hiring again in the U.S., I think as a country we can look forward to some stabilization,”Pinder said.

The two-year extension was signed into law by U.S. President Barack Obama on Friday, December 17. Democrats and Republicans were divided on whether or not to extend all of the provisions of the Bush cuts, with Republicans generally favoring a full extension and Democrats generally favoring cuts for all but the wealthiest Americans.

“The implications we hear in the press is[the tax cuts]are just for the rich and the like. The tax bill and tax cuts that were passed had a dramatic effect on all income levels in the U.S., and certainly we know the middle class bracket in the U.S. is very important for The Bahamas,”Pinder said.”That bracket needs to recover and as that recovers it will have a direct effect on The Bahamas.”

Pinder said the tax bracket that an individual fell into was not the only issue to consider with the Bush tax cuts extension, as rates on dividends, for example, were also impacted. Dividend tax rates would be important to different income earners, as any one with an investment account or a retirement account would be impacted, according to the tax specialist. Pinder said that under the extension, taxes on dividends would remain low.

In addition to the impact on tourism arrivals and spending, Pinder said that there should also be a less direct impact on the offshore financial services industry in The Bahamas. Acknowledging that our market share for the management of the funds of U.S. persons was shrinking due to the U.S. tax system, he said that there are still a number of reasons why U.S. citizens may still utilize Bahamian wealth managers. As such investors pay less in taxes there should be an increase in the amount of investment dollars generated and the funds managed here in The Bahamas, according to Pinder.

Pinder added that from a policy perspective, it is time for The Bahamas to focus on its tax structure.

“With a government that historically is always running deficits which just encourages the increase in debt burden, tax reform is a pressing, pressing matter,”Pinder said.

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