Tax threat looms, but Bermuda in stronger position

By added on 31/05/2011

The tax threat from the US still exists very much but Bermuda is in a far stronger position than it was a year ago, the Royal Gazette reports.

That is according to Eli Lehrer, vice-president of US think tank The Heartland Institute, who was on the Island last week meeting with reinsurers.

Mr Lehrer said there were also a number of opportunities for Bermuda’s re/insurance industry with the increased need for earthquake coverage in the US.

He said that the Neal bill had not been introduced this year and he did not expect it to come in a form of legislation passed that would take everyone by surprise, but rather in the form of fundamental tax reform.

“The nature of the tax threat now is different from what it has been before,” he said. “Fundamental tax reform could make a big difference for Bermuda.

“The bill at this point will not pass except in terms of fundamental tax reform and there is a level of awareness in individual states of this issue that has not existed before.”

Mr Lehrer said that because the bill did not have mass support it had not attracted a significant number of co-sponsors and therefore was unlikely to be passed on its own as well as being opposed by three major legislatures in Florida (both houses) and Louisiana (the House of Representatives).

“This all seems very good for Bermuda and it is,” he said.

“Here is the problem fundamental tax reform is on the table in a way it hasn’t been in the last year or since the 1980s.

“Everybody says they want to do it and for me there is an overall consensus that the statutory tax rates should be reduced, but the problem is that given the current economic situation in order to cut marginal rates you would have to find revenue from somewhere.

“Ultimately you are probably going to need to do a variety of things to achieve that and with revenue scores of upwards of US$15 billion this tax becomes attractive to people as part of a broad tax reform.”

Adding that the overall bill was still “alive and kicking” and could be put forward at any time, Mr Lehrer said that big strides had been made in alerting the American public and industry to the impact it would have on driving up prices for consumers.

In terms of Bermuda, he said that the last time the Island hit the headlines was over the Uighurs affair and it was being increasingly lumped in with “shady” offshore tax havens, unfairly so in his view.

Based in Washington DC, Mr Lehrer has also seen the opening up on transport links between the city and Bermuda through an increased flight service and number of cruises, bringing in more tourists and yet an overall decline in the industry was hindering the Island’s progress.

Pointing out that the tax advantages for US companies derived from operating in states such as Delaware were far greater than that of Bermuda, he said that the Island’s tax code was more favourable to certain types of business including re/insurance which in itself was a key part of every large company.

And while Mr Lehrer believes that earthquake cover in the US could provide a potential line of business for Bermuda re/insurers in the event of housing financing being reformed given the increasing amount of risk to exposure in some states like California, he said that Puerto Rico had already emerged as a strong competitor in that market.

He also views a big hurricane season as being potentially in Bermuda’s interests depending on the severity of any hit.

“Florida getting hit but not too hard could be the best thing that happened to Bermuda,” he said.

“The current situation leaves Florida far too exposed for its own good and that exposure is only going to increase over time.”

Admitting that while the stepping down of Representative Charles Rangel (Democrat, New York) from the House Ways and Means Committee had not helped Bermuda’s cause, the Island still had a number of supporters in Congress, he said.