A fair tax cut

While the UBP’s proposed payroll tax cut for those earning under $42,000 is a nice thought, who does it really benefit?  Does it simply punish the rich, reward the middle class a leave the poor behind?  Is there a better way?  One which could offer an evenly and fairly distributed approach that gives the most of the tax cut to those who need it, while not punishing as severely those who work hard to earn the most.

The UBP has proposed that they will eliminate payroll tax for those earning under $42,000 if elected.  The core problem with such a suggestion is that those who stand to benefit most are those who earn closest to $42,000.

Here’s a quick example.  Let’s say you only earn $20,000 a year.  Cutting payroll tax at the assumed 6% that is usually borne by the employee would result in a savings of $1200 a year.  Cutting payroll tax for those making $42,000 a year would result in savings of $2520.  However, those making $70,000 a year would still be required to pay $4200 in tax.

Unfortunately, those lucky enough to earn $42,000 a year make out the best, but those unlucky enough to earn $43,000 get hit with $2580 in taxes.   In reality, you’d have to make nearly $45,000 before you’d earn more than someone making $42,000 after taxes.  Does that make sense?

What if there was another way, one which took a page from the fair tax proposal by attempting to distribute the tax cut more evenly across all Bermudians sort of like a rebate.

Lets assume for arguments sake that the UBP’s proposed tax cut would amount to the $120 million dollar difference between payroll tax colleted in 1998 vs. last year.  Rather than doing it as a pure tax cut, continue charging the taxes but instead cut every Bermudian a quarterly cheque of their share of the savings.  Using our example $120 million and dividing amongst a Bermudian population of lets say 50,000 people, that would amount to $2400 a year or $600 a quarter.

As we saw above, for someone making as low as $20,000 a year, a cut in the 6%  would amount to a savings of $1200 a year in taxes.  Yet, a rebate of $2400 would give them $1200 more over the course of the year to spend, greatly assisting their income.

For someone making $42,000 a year, that’d amount to $2520 in payroll taxes of which the rebate would give them back $2400 meaning they’d only really be paying $120 in payroll taxes for the year.  Going back to that person earning $45,000, they’d pay $2700 in taxes but receive a rebate of $2400 netting them a total taxation of $300.  For someone making $70,000 a year, that’d amount to $4200 in payroll taxes which would net them a total post rebate taxation of $1800.

Such a scheme would benefit the young and old, the homeless and the wealthy.  The rebate could be offered in forms other than just cash in order to encourage community health and development.  Examples such as redeeming your tax credit for health care, child care or education vouchers.

The plan could even be expanded to eliminate payroll taxes altogether and supplement it with an increase in consumption tax (duty).  By this manner, people would be taxed purely on consumption rather than earnings which would take a bite out of those who live materially and spread the wealth amongst all Bermudians.

A tax cut for the poor is a nice thought, but given Bermuda’s wealth disparity, why reward those in the middle while punishing those at the bottom and the top?  Rather than punishing the rich and poor to reward the middle class, could we find a better way?  Could a fairer tax cut be introduced which could offer an evenly and fairly distributed approach that gives the most to those who need it while not specifically punishing those who work hard to earn the most?

13
Leave a Reply

Please Login to comment
13 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
6 Comment authors
MeriannaCERPMike TaylorDenis Pitcherharry Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Mike Taylor
Guest
Mike Taylor

Normally with a tiered tax structure, the the higher rates only apply to money earned past the applicable thresholds. In this case that would mean that if you made $43,000 you would pay 0% on the first $42,000 and 6% on the last $1,000. I would have to assume that that is what the UBP mean by this proposal since anything else would be boneheaded as your analysis points out. This stuff seems a bit too elementary for them to be missing so hopefully what we are hearing from the UBP is just a rough outline and when they fill… Read more »

DeOnion
Guest

It’s a good start. Remember this isn’t being proposed in isolation, it’s one part in an overall program.
Also remember that given competent government capable of appropriate managing budgets, departments, audits, capital spending, etc. it should be possible to cut taxes a great deal in the long run (or set up a national superannuation fund).

harry
Guest
harry

THIS IS A GREAT START,a TAX CUT,maybe we can encourage the govt.,to cut more tax’s,which will benifit everyone with a “LOWER” cost of living. GOVERMENT SHARING OUT MONEY TO EVERYONE,as you can see with the PLP it only goes as far as them selves.has never worked with any govt.,in the world.In theory it does but in practice, no way.Beaurcrats think that the money belongs to them.Even today they think that,just ask anyof them. but infact the govt does not operate without the joe public giving it money,there money.Goverment does not make money it only spends it stupidly.as we see every… Read more »

Denis Pitcher
Guest

Mike,
Thats the exact problem, the quote from the first paragraph of the newspaper article:
(http://www.theroyalgazette.com/siftology.royalgazette/Article/article.jsp?articleId=7d7b2b330030009§ionId=60)
“The United Bermuda Party has pledged to eliminate payroll tax for people earning $42,000 or less if it wins the General Election.”
Which doesn’t suggest creating a $42,000 zero tax tier and instead suggests no tax for people who earn less than $42,000

Mike Taylor
Guest
Mike Taylor

Denis, With a tiered system those in a 0% tax bracket would pay no taxes. I don’t see anything in the Gazette article that would rule out that this is what they are going to do. Maybe someone could ask them. Has anyone read the document ‘Agenda For Change — Plans For A Better Bermuda’? I haven’t. Here in Canada when the politicians discuss income tax rates they normally speak in a similar abbreviated way since sound bites are precious and accountant speak is sure to lose the audience. If they really would do something as stupid as eliminate taxes… Read more »

Denis Pitcher
Guest

“Eliminating the payroll tax
for any person earning
$42,000 or less.”
http://www.ubp.bm/agenda/agenda-for-change_hres.pdf
The direct interpretation is what I stated above and they havn’t provided any further info.
In reality, they need to focus on being clear on their intentions if they want people to understand what their intentions are.

harry
Guest
harry

This is not Canada , this is BERMUDA .
Bermuda I am proud to say has done very nicely in the last 400 years.And we have inherited this little country from our forfathers.
We are not going to make it like Canada or England or any other country that someone thinks of.
We will muddle along in our own unique way , but we will get there as we have always done before

Mike Taylor
Guest
Mike Taylor

Harry, If you have a point you will need to make it more clear than that. I don’t see where anyone is proposing to make Bermuda like any other country so I don’t see the purpose of your comment. Denis, The tax cut is referred to as a bullet point on an agenda released shortly after an election anouncement whith the promise of a detailed platform to follow shortly. It looks to me like rough outline meant to be a glossy handout which is clearly not meant to present their plans in detail. You want greater detail and you deserve… Read more »

Denis Pitcher
Guest

Mike,
Who said the document doesn’t serve a purpose?
Also, I can extrapolate and interpret a limited definition in any way I wish until further details are presented.
From the perspective of many voters they will no doubt do the same.
How about rather than debating what the UBP may or may not be announcing in further detail you provide your thoughts on my suggestion?

Mike Taylor
Guest
Mike Taylor

Denis, I wasn’t aware that I had said that anyone else said that the document serves no purpose. “Also, I can extrapolate and interpret a limited definition in any way I wish until further details are presented.” You can also speak backwards, eat with your feet and insist that 2+2=5 if you like. “How about rather than debating what the UBP may or may not be announcing in further detail you provide your thoughts on my suggestion?” Your suggestions, as best I can tell are: 1)To pass budget surplusses on to the consumer in the form of a rebate check… Read more »

CERP
Guest

well, I’d be happy with a relaxation of duty, i.e., $200 twice a year if your stay off island is more than 4 days, and or $1000 duty free per person, once a year.
This way, when us byes and girls’ take them important shopping trips, we would not keep getting that ‘sinking’ feeling payin the 22.5% on everything, minus the $100 deduction now allowed.

Merianna
Guest
Merianna

Sorry CERP, but the duty payable when returning home to Bermuda has been a flat 25% on everything – excess of the $100 allowance and alcohol and tobacco allowances – for some time now. I guess some of us don’t realise how much we really do pay by way of taxes.

Merianna
Guest
Merianna

Sorry CERP, but the duty payable when returning home to Bermuda has been a flat 25% on everything – excess of the $100 allowance and alcohol and tobacco allowances – for some time now. I guess some of us don’t realise how much we really do pay by way of taxes.