This article is one in a series about how to strengthen the V.I. government’s finances without raising tax rates. Each deals with a specific proposal.
One of the things that the V.I. government needs is more cash income – right now.
While some of the suggestions we will be making about fiscal management will deal with larger-scale issues, most of them will bring benefits only slowly. What we suggest today can start bringing in money within weeks, if quickly approved by the Legislature. And though by itself it is relatively small compared to the scale of the islands’ debt and recurring deficits, it can be a strand in a larger fabric of solutions, as well as serving as an illustrative example of solutions that are already helping other territories and mainland communities.
Background: Many individuals in the U.S. and in the USVI send money via wire transfers to relatives abroad. Usually called remittances, the World Bank has estimated that the total outflow from the nation is about $50 billion a year; a small segment of that flow starts in the USVI and goes primarily to other islands in the region.
Remittances should be allowed to continue, of course, but legislators should be reminded that any money sent out of the islands is money that subsequently will not circulate within the islands, and will not bring any of the economic benefits that would have come from each followup transaction. Money spent on groceries or entertainment or housing within the islands is much more useful to the islands’ finances than money that leaves it.
There is a strong suspicion, furthermore, supported by some mainland data we will get to shortly, that some of these wire transfers are made from undertaxed sources, and that a smaller portion may actually be tied to the drug trade.
As we will do again occasionally in this series we would like to offer here an example of a proven practice from the mainland that might benefit the USVI. We will start with Oklahoma, which has a tiny population of foreign-born residents, and which decided several years ago to attach a $10, or 1 percent fee, whichever was larger, to all individual wire transfers to persons outside the state. The fee does not apply to corporations. The fee is designed to be small enough so as not to encourage residents to switch to other, more expensive and dangerous ways of remitting funds, while still being large enough to raise a meaningful amount on a recurring basis.
Additionally Oklahoma decided that it would be much better if the charge were not simply a fee, but something that could be used as a partial payment toward state income taxes, much like a tax withholding by an employer. In other words, the new arrangement would not actually cost tax payers a dime, even while it would raise funds from non-taxpayers.
Interestingly Oklahoma found that more than 90 percent of the fees were not reflected in later income tax filings, suggesting that it had indeed found a source of untaxed income.
Proposal: That the V.I. government introduce a $10, or 2 percent fee, whichever was larger, to be paid at the time of the transmission. To simplify the bookkeeping, the fee would be rounded to the nearest dollar. The fee would be collected by the wire transfer companies (who would get, say, a $1 payment for themselves, with that item to be subtracted from the V.I. government’s fee.)
At the end of each month the wire transfer companies would send the net proceeds from the fees to the V.I. government, along with the names of those paying. The wire transfer companies would give the sender of the funds a receipt that to be used at income tax time. Any fees paid would be eligible for a dollar-for-dollar tax credit. The receipt can even include a reminder of the tax credit. Therefore island taxpayers would not, in effect, experience any additional out-of-pocket expense. The fee would only truly be borne by non-taxpayers, who arguably ought to be contributing more to supporting the island government and its various public functions.
We assume that legislation will be needed.
Predicted Results: Oklahoma received more than $12 million in the most recent year from this source. There were about 36,000 foreign-born residents of the USVI in the last census and there were about 207,000 foreign-born in Oklahoma, or about six times as many in the islands. Since this is the population most likely to send remittances, these numbers at first suggest that the V.I. government would collect about one-sixth of the fees collected by Oklahoma; however, since we are proposing higher fees than Oklahoma, we predict an approximate revenue stream of $3 million a year for the islands. The Oklahoma figure has increased by 8 percent year in every year since it was introduced.
Both the wire transfer companies and some of those sending remittances can be expected to object, but virtually any proposed reform will be opposed by someone.
O.K., Mr. North, who ARE you (Ms. Pennington, who IS this? You have yet to identify your mystery contributor as far as I can see) and what is your connection to the USVI? Are you intending to run for office? Are you simply a protagonist without a clue living Stateside? Banks and wire companies already charge maximum fees for wire transfer, and you’d like V.I. residents to pay more into an already broken system without EVER addressing the inherent problems that have existed in the V.I. for decades – who ARE you? WHY do you think throwing more and more cash at the V.I. Government will somehow magically result in prosperity? The problems in the V.I. are culturally systemic. Faux entitlement. Until that ends, giving “them” any more money won’t help.
Dear “local”, My name is Rodney North and I was introduced to Source readers back on February 15th when the “Account Ability” series was launched. This is the eighth article in the series. My connection to the islands begins – but doesn’t end – with my father, David North, another contributor to this series, and an occasional contributor to VI Source since at least 2000. Among other things we share an interest in good governance and fiscal responsibility, right down to some of the smaller nuts and bolts that others might find boring.
No, I am not intending to run for office. As a mainlander I think my chances would be slim.
And, no, neither my father nor I think that “throwing more and more cashing at the VI gov’t will somehow magically result in prosperity”. As was posited in the introductory article my father and I realize that the GVI, and its constituents, face many challenges and in regards to its massive deficits and debt the bulk of the necessary actions can only be decided by islands’ voters. However, while they and the islands’ political leaders grapple with the biggest issues (e.g. should some taxes be raised? If so, which ones? On whom? By how much? Or ‘what services to reduce? How to increase accountability?’ Etc.) interested, sympathetic outsiders like ourselves can offer ideas about how the GVI might at least reduce its fiscal shortfalls _without_ raising tax rates. Source readers can decide if some, one, or even none of the ideas are helpful. Or maybe the series can help spur a conversation that eventually leads to a single, but useful, initiative. In which case, it will have been worth the effort.
Get yourself a copy of “Rape of the American Virgins” (O’Neill, 1973) and get a grip on how the V.I. got to this point. Until an authority superior to the Governor, which invariably seems to be the Federal Government, through the U.S. Attorney’s office, takes the reins to the Carnival, nothing will change. It will simply be better hidden. This is the same Government that watched the U.S. Attorney convict someone of program corruption after Marilyn (or was it Hugo?), sentence that person to 3 years Federal time, and THEN the GVI names a large transportation facility after that person as a back-handed swipe at the Feds. If you don’t understand the nuances of culture, your suggestions go nowhere except into the pockets of those gaming the system. Your articles provide only suggestions that further burden the taxpayers to the benefit of the cabal.
O.K., I’ve got your attention and ran back through your articles. Had insular affairs acknowledged the “cultural problems” over the decades, I don’t believe we’d be at this crossroads. Some hard hitting articles on nepotism (the Gov. was trying to “install” his cousin, I believe, into the A.G.’s office last year to “keep an eye on things.”), corruption and maybe hiring qualified people to positions requiring qualifications above and beyond who you are related to or whose skeletons you have information on might ultimately achieve a benefit. However, proposing “ideas” on how to further burden the non-government taxpayers (and the government employees, for that matter) that the Legislature and Executive might use to maintain their carnival of collection until their “turn” is over does a disservice to the general populous.
Why not charge fees for breathing island oxygen?
That’s the next article in the series.
A similar measure was proposed to the Legislature about a decade ago. There were some issues with the federal government that needed to be worked out, chief among which involved our banks not being considered “US” and other matters related to our territorial status and the Jones Act.
Those matters were worked out and we now charge fees on all wire transactions, including ATMs.
more taxes on the usvi populace will not fix the USVI govt’s financial crisis, eliminating fraud, glad-handing and applying financial accountability and transparency would be a logical start.