US tax reform seen as more likely
US tax reform has become much more likely after the Republicans won control of all three arms of government in Tuesday’s elections — and that could have consequences for Bermuda’s international business sector.
That was one of the early takes from the poll that saw Donald Trump elected the next US President and his Republican Party colleagues maintain control of both the House of Representatives and the US Senate.
Reaction from some leading business figures on the island yesterday suggested that it is too early to understand the full impact on Bermuda but that the island had better be prepared for some changes after the change of power.
Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers, who lobbies on behalf of the island’s flagship industry in Washington, said: “We always have three major issues with the US — insurance market access, tax policy and regulatory policy. And that is always the same, regardless of who’s in power.
“Tax reform is a priority for the new Trump administration and in the Republican Congress and the Ryan-Brady blueprint will have more prominence.
“There are some issues in there for reinsurance and we have met the House Ways and Means Committee and will meet with them again.”
He declined to discuss the specifics of the meeting, but said there were some issues on tax reform that Bermuda would have to address, but he was optimistic this could be done successfully.
Earlier this year, Paul Ryan, Speaker of the House of Representatives, and Kevin Brady, chairman of the tax-setting House Ways and Means Committee, put forward a tax reform plan that included moves to simplify the US tax code, close loopholes and cut the federal corporate tax rate from 35 per cent to 20 per cent.
Mr Trump’s campaign proposals appeared to borrow much from the plan, but his proposed corporate tax rate is even lower at 15 per cent.
Mr Kading added: “I haven’t spoken with anyone since the election, but before the election the theory was if there was a Republican Congress, then the House would try to move tax reform legislation in the first six months of 2017, and put it forward for Senate consideration in the second half of 2017.”
He said that having both houses of Congress and the executive branch under the control of one party was very unusual and this would allow for the government to enact its policies faster.
Mr Kading added that among the positive aspects of the new government from a Bermuda viewpoint was that the Republicans were likely to have a greater appetite for allowing greater transfer of risk from the public sector — for example, the National Flood Insurance Programme — to private-sector reinsurers.
Nathan Kowalski, chief financial officer of Anchor Investment Management and a columnist for this newspaper, said it was too early to say whether the Republican clean sweep would be good news for the island or not.
“It is too early to understand the true impact on Bermuda and only time will tell,” Mr Kowalski said.
“The clean sweep obviously makes a Republican doctrine more accessible. Questions may remain on whether the Tea Party and other factions of the Republican party will support President-elect Trump’s policies.
“But the Supreme Court will likely move further to the right and some legislative changes are far more likely now with the Republicans controlling the House, the Senate and the Presidency.”
He added: “The good news is that legislation drafted and sponsored by the Democratic Party that could adversely affect the reinsurance industry in Bermuda like the Neal Bill is less likely.
“The bad news is that Trump’s agenda to put American jobs first could pressure any form of offshoring. Furthermore his proposed lower corporate tax rate could make offshore or other lower-tax jurisdictions less attractive.”
Mr Trump’s campaign pledges have included huge infrastructure projects, as well as swathing tax cuts. But he will have to work hard to win over potential opposition to the large capital spending programmes from the Tea Party element among the Republicans, according to Mr Kowalski.
“President-elect Trump’s suggested corporate tax rate of only 15 per cent and the 10 per cent repatriation holiday could pressure lower tax regimes such as offshore jurisdictions,” Mr Kowalski said. “This is a very competitive tax structure.
“Tough to say exactly how likely this is given the fact that a huge infrastructure agenda may be less acceptable by Tea Party Republicans. The new President will also have to bring together a divided Republican Party before any policies can be introduced.”
Ross Webber, chief executive officer of Bermuda Business Development Agency, said: “Bermuda has a longstanding history of co-operation with the United States, and America remains our largest trading partner — that holds true no matter which administration is in power.
“Our jurisdiction will continue to nurture this incredibly valuable and symbiotic relationship that Bermuda has shared with America for more than 400 years.
“Our economy plays a critical role in the US. Research indicates we support a minimum of 300,000 American jobs alone. Our agency will continue to work to raise awareness among policymakers, industry influencers and government leaders about Bermuda’s worth to the US, and to economies around the world.”
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