Duty tax warningFebruary 14, 2012Dear Sir,Bermuda is a remarkable place. Over the past few years, I have had the opportunity to travel to Bermuda quite frequently on business and have enjoyed my time on your beautiful island.Recently I have been following your debate on the potential to substantially raise your duty rates on the importation of personal goods for your residents. The stated intention is to support your local retailers, but as a visitor with a background in economics and a chosen profession of investing, I find that the plan raises more issues than it answers:l First, it is difficult to prop-up retailers by increasing tariffs on other purchasing channels. Economic progress moves on and less competitive businesses eventually evolve or fail; regulations may slow that trajectory, but they cannot reverse it.l Second, tariffs have unintended consequences and their overall impact is hard to predict. Almost all tariffs increase prices for consumers and reduce overall consumption. Tariffs also encourage behaviour that often undermines their intent. In the case of Bermudian consumers, evasion or, in a more positive sense, innovation in buying and shipping patterns, may sidestep the main impact of the tariffs.l Finally, tariffs are simply specialised additional taxes. As Bermuda struggles with the ongoing pressures of the global financial crisis, it could find that additional taxes may appear to raise government revenue but may actually further dampen an economic recovery.I must clarify that I am not a practising economist and I am not a student of the special challenges that an island economy like Bermuda’s poses.However, as an observer of economic policy and as an investor, I can say with some certainty that over time these tariffs will not protect the domestic retailers, will increase costs for consumers in Bermuda, will dampen demand and growth and will probably detract from Government revenue and not enhance it. Almost inevitably, a market driven solution which allows the most competitive entities to flourish benefits everyone but allowing competitive forces to rule can be painful in the short term. As an avid visitor and a spectator of Bermuda I would urge the Government to let consumers vote with their spending decisions unimpeded by special tariffs and taxes.MIKE EVENBA Economics, Cornell UniversityMS Business, Sloan School, MIT