How will a tax cut designed to distribute a surplus affect a territory facing a deficit?
That's the question facing Virgin Islands government and business leaders as they attempt to determine the impact of President George W. Bush's proposed income tax cut on the local treasury and economy.
V.I. income taxes, which mirror the federal income tax, account for roughly half the territory's revenues. Last summer, when Gov. Charles Turnbull submitted his 2001 budget proposal, he estimated individual income tax collections for this year at $205.2 million.
The Bush plan would lower that amount by $28.6 million, according to calculations made by the V.I. Bureau of Internal Revenue, and local economists and business people are concerned.
"There's so little growth now, it'll have a big impact," St. Thomas economist Richard Moore said.
"I hope local government doesn't use (the proposed income tax cut) it as an excuse to raise (local) taxes," said Carmello Rivera, president of the St. Croix Chamber of Commerce. That would be "a knee-jerk reaction."
"Raising taxes, that's not one of the options that we would consider at this point," said Nathan Simmonds, the man Turnbull recently tapped to head the administration's implementation of recommendations in the Five-Year Operating and Strategic Financial Plan for dealing with the Virgin Island's deficit.
"Our focus at this time has got to be on growing the economy," Simmonds said.
Bush is counting on tax cuts to help do just that. If people have more, they spend more, or so the argument goes.
But John de Jongh Jr., president of the St. Thomas-St. John Chamber of Commerce, questions whether that will be the case in the Virgin Islands. "In such a fragile economy," he said, where government workers live under the threat of layoffs and vendors wait for government payments, people may be more inclined to hold on to their cash.
Simmonds acknowledged that in uncertain economic times people "have a tendency to hedge and hold on to their money." But he said they can be reassured by a feeling of financial stability. "We've got to create that atmosphere."
The V.I. government already has passed legislation to create one-stop regulations of businesses to encourage private enterprise, and to establish a Tax Reform Commission to restructure tax laws, Simmonds said. It also established an Economic Development Authority and is expecting to privatize some government functions. Implementation of these programs is a top priority, he said.
