Want to benefit from billionaire residents? Tax them!

Dear Editor,

With all due respect to Mr. Tony Gomez, whom I know to be a well-informed Bahamian professional, the answer to getting value from wealthy foreign residents in our country is far simpler than he suggests. We just need to tax them more.

If anyone is expecting wealthy residents to miraculously create economic growth just by being rich and being here, then they are fundamentally misunderstanding the nature of capitalism.

COVID-19 is infectious. Wealth is not.

In fact, the very wealthy are so good at keeping their wealth to themselves that a whole industry exists to support their efforts. This industry was once huge in The Bahamas but ironically seems to thrive less where its customers are physically resident – hence “offshore”.

In neo-liberal capitalism, people who become billionaires do so by extracting profits either from other people or from natural resources. If you are sane, rational and have a choice in the matter, you do not want foreigners doing either of these things unrestrictedly inside of your country – especially if you are tiny and trying to sustain your own nascent local business class.

Rather, you want to attract investors that bring their own (foreign) customers from which to extract their profits, while you determine (through immigration, tax and labour policies) how the benefits of that profit-extraction are leveraged and distributed domestically. No added benefit accrues from these investors actually living in the country.

That is why the creators of that ingenious thing called “Bahamianization” explicitly prohibited foreigners from operating within our domestic economy. Instead, they limited them to selected, major investment activities that comprise the “external” economy. When we began to blur this distinction is when our economic model (and the middle class that it created) began to falter.

Atlantis and Baha Mar are, of course, owned by foreigners. But since they form part of the external economy, they extract their profits almost exclusively from other foreigners, rather than from the domestic Bahamian economy. The only parts of the exchange that Bahamians are involved in are the beneficial ones: jobs, contracts and the purchase of local business and professional services (all of which are reserved for Bahamians).

Contrast this to the impact of the myriad wealthy foreigners now resident in The Bahamas. Quite apart from pricing Bahamians out of scarce land resources, they often complicate efforts to protect domestic businesses and labor from competition. The Filipino community clearly benefits from Lyford Cay, but it is hard to see how, on balance, the wider Bahamian one does.

Moreover, when wealthy foreign residents are pressured to invest locally, they naturally look to areas historically reserved for Bahamians. Inevitably, the conversation then turns to the impediments to doing business in The Bahamas — by which they do not mean, for instance, the ambush predators known locally as “banks” (and to which, unlike Bahamian businessmen, they themselves are not prey).

Rather, they tend to mean such things as our pro-Bahamian immigration rules and other polices that created our middle class.

Having gotten into the business of massive foreign residency by accident, rather than design, successive Bahamian governments have been convinced by self-interested professional lobby groups that this policy is a natural recipe for economic growth, which we are somehow not properly harnessing.

The reality, however, is that it is far from a natural recipe for economic growth.

In fact, it is a more natural recipe for economic malaise (displacement of locals, inflationary price rises and a consequent reduction in local spending power and living standards) if not managed carefully.

That is why well-governed places that attract lots of wealthy second-home owners all have one thing in common: extremely high taxes on luxury properties.

West Palm Beach does not have to ask itself how it can benefit from its many billionaire second-home owners. It is too busy benefitting itself by building its schools and libraries and keeping its roads immaculately manicured, courtesy of the high property taxes that it collects from them.

If they don’t pay, it takes their homes and sells them to others who will. Far from harming its luxury real estate market, this keeps it active and within reach of enterprising locals.

No mansion in West Palm Beach has anything on the average cay in the Exumas. Yet while both are prohibitively expensive to most locals, the latter carries a tax concession so extreme, that it signals a government literally begging for rich residents merely for the sake of having them around – then expecting economic benefits to magically drop from them.

Unless we propose to slash local wages to Filipino levels and retrain our professionals as maids and gardeners, the only benefit that most Bahamians can ever possibly derive from the presence of wealthy foreign residents here is the opportunity to collect high, progressive taxes on the luxury properties that they alienate from Bahamians.

Yet this is the very thing our governments seem determined not to do — and our professional classes and media equally determined not to talk about.

— Andrew Allen 

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source https://thenassauguardian.com/want-to-benefit-from-billionaire-residents-tax-them/