A letter to the editor published in today’s edition of Cayman Net News written by the Chamber of Commerce in response to a recent editorial in which we suggested that the Chamber has produced no effective contribution on behalf of local business interests to the Budget proposals and especially the new taxes we are all expected to bear, as was to be expected, attempts to refute this proposition.

The Chamber of Commerce provides, it says, pertinent factual information that confirms the Chamber’s successful efforts to express the views of its membership leading up to the recent budget deliberations.

Indeed, the Chamber may well have been successful in its efforts to express the views of its membership, but the acid test in our opinion is – were such views taken on board and acted upon by the government?

The Chamber says it expressed its opposition to then Leader of Government Business, Hon. McKeeva Bush, to any additional revenue measures without a definitive plan to cut costs and reduce debt, any additional general corporate or any form of taxes on income, interbank transactions, payroll or property.

Clearly, this point of view was not acknowledged in the Budget proposals, which consisted exclusively of new and increased fees and duties but with mere lip service paid to the notion of reducing government expenditure.

In fact, Chamber president Stuart Bostock reportedly made the very valid point to Mr Bush that increasing fees and duties during the global economic slowdown could lead to further business erosion and negative growth, particularly among small businesses – something that we are now experiencing in no uncertain terms.

The Chamber says that it is “dismayed that deeper spending cuts were not introduced for this year’s budget, particularly when the private sector and the community are being asked to contribute an additional CI$126 million in additional fees,” but where is the ongoing lobbying to express such dismay in ways that are more effective in getting the attention of the government?

According to the Chamber, “the government needs to act boldly and decisively to reduce government expenditure, to reduce the national debt and to stimulate economic growth and investment.”

By the same token, the Chamber needs to act boldly and decisively to pressure the government into doing exactly what, according to the Chamber, it needs to do.

The Chamber also welcomed the appointment of Reagan administration economist James Miller III to head the independent committee on direct taxation and expressed the hope that Mr Miller will also suggest ways to reduce government spending and to reduce the national debt.

As Budget Director for President Ronald Reagan between 1985 and 1988, Mr Miller seems to be ideally placed to bring to the Cayman Islands the concepts of former President Reagan’s economic policy (“Reaganomics”), which were to reduce government spending; reduce income and capital gains tax rates; reduce government regulation of the economy; and control the money supply.

Although his record is still debated, Mr Reagan succeeded with lower marginal tax rates in conjunction with simplified income tax codes, and continued deregulation. However, government spending and deficits rose during his administration.

Reaganomics called for massive tax cuts in order to stimulate investment. The economic growth would then “trickle down” to the workers. Unfortunately, as we have seen here, a trickle down economic policy has emphatically failed to work as quickly or effectively as was necessary to save our own economy during this current crisis.

As supply-side economics also called for budget cuts to counteract the loss of revenue from the tax cuts, Mr Reagan put together legislation that cut government expenditures and created a three-year tax cut plan for individual and corporate income taxes. The tax cut was the largest in history and was expected to jump start the economy. However, after the bills passed in the summer of 1981, the country fell into the worst recession since the Great Depression.

How well did Mr Reagan and Mr Miller succeed in cutting government spending?

In 1980, the federal government spent $591 billion. In the last recorded year of the Reagan administration, the federal government spent $990 billion, an increase of 68%. Whatever this is, it is certainly not reducing government expenditures.

Further, the famous “tax cut” of 1981 did not cut taxes at all. While tax rates for higher-income brackets were cut, for the average person, taxes rose, rather than declined – another type of trickle down economic policy – this time supposedly from the rich to the poor.

While the proof of Mr Miller’s pudding will be in the eating, the last thing we need here is more failed “trickle down” economic policies from yet another imported consultant who does not know how the Cayman Islands’ system has worked for years to become a success story in spite of previous bouts of international economic downturns.