The coming economic circus

It was just a matter of time before calls came to increase the taxes on the garment industry yet again, and whispers to that effect are now starting to circulate. One proposal is to crank up the user tax by 35 percent, from the current 3.7 percent rate to a five percent rate.

(And, yes, 3.7 percent to five percent is a 35 percent increase in the tax payment.)

The Commonwealth may be in a classic graveyard spiral in which it winds up cranking up tax rates on a shrinking tax base. Meanwhile, trade barriers and tariffs are falling in north America. Asia’s labor costs are still falling. The CNMI is relatively more expensive from a labor cost and tax cost standpoint than it was last year. Got that? More expensive.

Meanwhile, the tourism industry is dead in the water, and I, for one, don’t expect it to rebound any time soon. Tax receipts from this sector will be going in one direction.

The CNMI has chosen its course, and I see a major financial train wreck coming. What then?

First on my list would be falling land prices.

Second on my list would be lenders such as banks beginning to back out of the market, spooked that falling prices mean falling security for loans. Third–sort of a full circle thing–the decreased loan availability will result in–what else?–a steeper fall in land prices.

The business end of things will follow similar circles. Decreased earnings potential here will mean decreased demand for business loans, and the risky climate won’t make for very enthusiastic loan officers. If you were a banker, would you sink your money here? Or would you feel safer with it in, say, Atlanta? Why?

For now, at least, the banking sector looks OK. We’ve been adding banks lately, not losing them. It will be interesting to see how much money they are actually loaning here, though.

Meanwhile, the demands on our government are growing by the day, while the money to fund it is shrinking by the hour. Something is going to have to snap under the strain. That something is going to be the private sector. There’s simply no other way this game will be played. It’s too late to change course, and very few people really want to change course anyway.

We are, then, certain to see more and more calls to raise taxes, which very well might happen until the entire economy crashes like the tourism sector is doing. Then what? The blame game, of course. We’ll blame bankers, businessmen, alien workers, Japan, Korea, Russia, and perhaps even Elvis for the situation.

Sounds like a circus to me.