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Laffer curve and taxes

EDITOR, The Tribune.

WHAT is the Laffer curve? The tax rates and the amount of taxes collected by government, and the impact it has on the economy.

There is a certain peak in which the tax rate can be at a sustainable rate to help to balance an economy, then there is a breaking point in which the tax rate can force sales to decrease rapidly and in some areas all together.

The Bahamas is at that peak, unfortunately, their so-called advisors/economist speaking to the nation’s leaders past and present are unfortunately giving them the wrong advice.

Because we have a kraken government system, past and present, that promotes a lot of socialism and places us at the mercy of what is known as - public choice theory (where people in this case, politicians) know something isn’t good for the economy and has certain ramifications, yet the politicians still do it because they care about their personal interest over the electorate’s interest who hired them to serve).

Because the size of government and their social practices, alongside the nepotism, lobbyism and cronyism, the government must find money to appease their demographic of people who fit one or more than one of the categories above.

Therefore, they have no money of their own so they have to come to the people with, direct taxes and many indirect taxes, which is compounding to far exceed the revenue they have set out to collect, this is why each time you would hear them say they did better than they set out to do with the tax rates.

Now let’s see what are the ramifications of these actions taken and how it creates the Laffer curve effect, despite them painting a pretty picture and using their voodoo economics and then distorting the facts of the real outcome.

The taxes coming from different angles which create high inflation possibly can lead to stagflation, (high unemployment plus high inflation) but overall the ramifications of Laffer curve which is also because of this tax rate, causes the government to collect more money at the expense of causing the people to be in a position to shop less, until there’s no money in circulation to shop at all.

The United Kingdom experienced this in the 1970s, as there’s something called public choice theory (where decisions are made knowing it looks good to the people, but will have a negative outcome eventually, but for self-serving purposes its applied anyway) was conspicuous as the politicians used socialism, nepotism, lobbyism and cronyism as a means to try and secure their seats as we always do here in the Bahamas.

The taxes were so high, stagflation was the order of the day and as the Laffer curve effect took place the government taxed themselves out of any possibility of collecting any tax revenue.

The bigger the government, the smaller the private sector became, instead of putting infrastructure in place and letting the markets work themselves out, the government felt they had to create jobs for the special interest people.

But when it’s time to pay these salaries, they went to the private sector and continued to extort them through taxes.

These actions led to great right sizing by the private sector to try and thrive in an economy on the death bed.

Because the government taxed the majority of businesses out of business and, therefore, there was no trickle economics, so most of the economy was economically dead.

The majority of businesses in the private sector had to close, because no money was in circulation, the people no longer had money to spend and the businesses couldn’t beat inflation.

United Kingdom was known as the welfare state, until God raised up one Margaret Thatcher, she had the brains to read up on some of the greatest economists who ever lived.

We are at that peak with taxes and if not met immediately with real solutions to conquer this pending destruction, we are heading towards what United Kingdom was in the 70s.

It mayn’t seem so, because our government is bragging about what they’re collecting, there are unintended consequences, I say to them don’t be like the dog with the bone that lost his bone because of greed.

Relieve the economy of all these taxes to accommodate special interest people and allowing the majority to suffer for your minority.

BAHAMIAN TYCOON

Nassau,

December 20, 2023

Comments

Porcupine 12 months ago

Nice letter, but many of the assumptions are flat out wrong. Thatcher / Reagan went full hog on neoliberal economics. The result is what we see now in both countries. Who thinks this looks good? Both countries are rotting from the inside out, due specifically because of unfair economic decisions made by the wicked witch Thatcher and movie star Reagan. Thatcher said, "There is no such thing as society." Only worry about yourself. Isn't this the exact opposite of what Christianity teaches? Or, are we all brain dead now? Trickle down economics is a myth. It has never worked. Except in the university system that was bought and paid for years ago. Most tycoons in the world got to where they are by unprecedented government giveaways, such as the billionaires Russia produced. Most wealth in the world is now from inheritance, not hard work. I agree we have a government that doesn't understand economics, nor is wise enough to hire experts willing to tell them the truth. But the Bahamian problem has now trickled down to the entire nation, as in the fish rots from the head down. We have too many people on the government payroll who have poor work ethics and even worse societal responsibility. Too many of our own people, who are not politicians, are not honest and are stealing too much, and have no care about the society they live in. Overall, I agree with the premise of your invoking the Laffer Curve to explain a major problem in The Bahamas. However, besides taxation, the government clearly crossed the line in allowing the criminal class to legalize webshops by purchasing the pirates who run the government. There is no greater harm done to our nation than we are experiencing from the gambling epidemic. Save for maybe alcohol consumption, unchecked violence, unheeded laws on our roads, lack of accountability in all government offices, an uneducated workforce, taxation without representation, poor leadership, teen pregnancies and children raising children. It is not difficult to imagine a society that worked towards producing a higher standard of living for everyone, instead of one that was really good at producing tycoons and ignoring the masses. But then again, who is it that the politicians listen too? Yes, the government is taxing the people to death and killing our economy, and our quality of life. However, they were raised in an environment that does not seem to value honesty, integrity, proficiency, and basic democratic values. It almost seems like our politicians were schooled by Margaret Thatcher, in simply not caring about anyone but themselves.

hrysippus 12 months ago

Porkipine; you make some good points. Margaret, the wicked witch, Thatcher is famed for the economic evil of burdening the country that she governed with the iniquitous VAT, just like Christie and Davis did in the Bahamas when they wre governing. VAT in the UK is now 20% on everything; this country will most probably end up the same in the pursuit of satisfying the bottomless pit of government greed.

BONEFISH 12 months ago

The VAT was put in place in 1973 when Edward Heath was prime minister. The same year the Bahamas became independent and the UK joined the European Economic Community. Mrs.Thatcher was a cabinet minister then and not prime minister then.Labour and and as well as the Liberal Democrats have made no attempt to repeal it

hrysippus 11 months, 4 weeks ago

Gonefish; the UK is governed by the collective responsibility of the Cabinet. Thatcher was just as responsible as Heath, just as Davis is just as responsible as Christie for inflicting VAT on the Bahamas. Your point about the Liberal Democrats is totally irrelevant; firstly because they held very little power as the minor player in a coalition government for a fairly short time; and secondly, because governments never repeal taxes, except in the rare occasions when a tax is repealed and replaced with a more burdensome one; Thatcher's failed attempt at the Poll Tax comes to mind.

realitycheck242 12 months ago

Bahamian Tycoon, your Laffer curve theory is sound and a very good explanation for the Government past and present is doing to the Bahamian people. It all boils down to the economic policies implemented by the various administrations (PLP and FNM) from we achieved majority rule in 1967.

While the period from 1967 to 1992, and especially after independence in 1973, remains “the most transformational time in our post-independence history”, Ingraham administration policies meant that those who already had significant capital did very well, and there was no significant positive impact on national development under a Minnis administration. Families who benefited from the country’s natural resources via shares in those companies , were given an enormous head start, in terms of the ability to accumulate capital and wealth.

while education gave thousands of Bahamians new paths to self-empowerment and opportunity, the economy was not sufficiently expanded and diversified in order to accommodate them. “After the initial group of middle-class success who all had political connections, educated Bahamians were later encouraged to become ‘jobseekers’, rather than people with high ambitions to pursue careers and create wealth,” Financial and personal discipline played a role in those who today can be said to have succeeded and those who lost it all. Let us not forget that the drug era fueled a fake illusion of a vast underground economy for many who have either passed on and was not able to transfer their wealth to the next gene The arrival of the Ingraham in 1992 signaled many changes that today still have a profound effect of the Bahamian Population. One such policy is the amount of consumer loans or consumer credit Bahamian workers are allowed to access. Consumer debt in 1991 was about $271Million or about $2,000 for every working person. By the end of 2014, the level of consumer debts had increase to almost $2.3 Billion Dollars or about $11,500 for every working person.

Thus, from 1991 to 2014, our average income after taxes increased by about 8 percent but the level of our consumer loans went up by almost 500 percent. The true position is worse.

How did this explosion in consumer credit really begin?

In 1991 to secure a consumer loan, government policy was that you had to have first saved something. Specially, if you wanted to borrow $1,000, you had have at least $350 of your own. Beginning in 1992 or early 1993, the Government decided that this policy was a "harsh restriction". So the need for any deposit was eliminated. You no longer had to save anything. For workers It Drastically Worsened Their Financial Position. The maximum amount of a salary which could be paid via an authorization for "salary deduction" was 45%. Over a period of time, even that policy has changed. With excuses like exemptions for emergencies, The typical Government employee is actually seeing only 28% of his or her income as take home pay.

realitycheck242 12 months ago

So we are in this situation today because of bad government policies which is causing the suffering of the Masses because a politicians job is to create an illusion of success to satisfy the masses to stay in power, all the while the majority of the population suffers, and they blame it on inflation and tax us all from cradle to grave.

birdiestrachan 12 months ago

Who will pay for the roads the schools and the hospitL and clinics civil servants

birdiestrachan 12 months ago

Least we forget the food coupons children breakfast program

sheeprunner12 11 months, 4 weeks ago

I agree with the letter writer.

It seems as if we switched the UBP in 1967 for the PLP/FNM, but 85% of the macro-economic policies and national economic philosophy have remained the same.

We just switch the white Bay Street Boys for the black Sunshine Boys.

The masses are still been oppressed by institutional corruption, regressive taxes & national monopolies & an unproductive civil service hamstring the nation. Add to that high debt & crime and poorly educated & adjusted youth.

A recipe for a national disaster ........

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