Offsets for a Green Tax Shift

1. Offsets for a Green Tax Shift

2. Additional revenue from Green Taxes – where should it go? • Offset individual income tax? • Offset Corporate/business income tax? • Offset Telecommunications tax? • Other Recommendations? • Offset Fed payroll tax?

3. Individual Income Tax? • Over $400 M, 40% Tax Dep’t receipts over last several years • Can eliminate tax on large percentage of filers for relatively small expenditure

4. Individual Income – ExamplesTo eliminate income tax on x %, who earn…would cost… • 52% of filers <$30K Income $19.6 M • 71% of filers <$50K Income $72.2 M • 100% of filers all income brackets • $380M - $420M, depending on year

5. Drawbacks of Income tax Offset • State Income tax is progressive enough that lowest income filers have little or no liability. • Offsetting Income tax would not help compensate for higher fuel costs.

6. Corporate/Business Income Tax? • Could potentially be eliminated • Left alone for now • Businesses derive benefits from offsetting FICA • Law of unintended consequences • Current work being done to change corporate taxation, requiring Unitary Combined reporting to crack down on income-shifting

7. Sales and Use Tax? • Considered ‘green’, as it taxes throughput and waste. • Left alone for now. • Must be reviewed and revised to tax environmentally damaging products more heavily than benign ones. • Review exemptions, leave only those on necessities used by all people.

8. Federal Payroll Taxes FICA – Federal Insurance Contributions Act • Part 1 – Social Security/OASDI • (Old Age, Survivors, Disability Insurance) • 12.4% of all wages paid up to $87,900. Ceiling increases to $90,000 in 2005. • Half paid by employer, half by employee, unless self –employed.

9. FICA Taxes, cont’d • Part 2 – Medicare • 2.9% on all wages – no ceiling • Half paid by employer, half by employee, unless self employed. • Total of 15.3% of wages paid to FICA • 7.65% each by employer and employee • (over 90% of Vermonters are unaffected by ceiling)

10. Why FICA? • Better direct offset than income taxes. • Easy to measure due to federal reporting requirements. • Can reimburse based on wages and taxes paid, starting at the bottom of the income scale. • Better for business: 7.5% tax reduction

11. Examples

12. Economic Benefits-FICA offset • Returns income to those most likely to spend it, boosting local economy. • Incentive for employment. • Aids businesses as well as workers. • If its favorable to employ or be employed here, that’s a Business-Friendly environment for Vermont!

13. Shifts tax from a ‘good’ to a ‘bad’! • Revenue collected based on carbon emissions and/or water usage, which individuals and businesses can work to control. There is a financial incentive to make responsible decisions. • Damaging impacts of payroll taxes are offset, boosting Vermont economy.

14. Design/Administration $2.6B revenue

15. Design/Administration $2.6B revenue

16. Design/Administration $2.6B revenue

17. 100% Green TAX shift-2004 $2.6B revenue

18. Conclusions • Can shift to tax resources and waste without hurting and perhaps helping the economy. • Can eventually simplify taxation and revenue generation enormously by shifting to a few broad based green taxes. • Like anything else, all that’s missing is the political will.