Offsets for a Green Tax Shift

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?

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

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

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.

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

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.

Federal Payroll TaxesFICA – 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.

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)

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

Examples

Income employee

VT income

tax

FICA employee

FICA employer

Self-employed

$10-$15K

0 $956 $956 $1912

$15-$20K

$79 $1340 $1340 2680

$25-$30K

$633 $2486 $2486 $4972

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!

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.

Design/Administration

2004 VT Taxes+FPT

Property Transfer Tax

Other fees

Tobacco Products

Other general taxes

TOTAL AIR AND WATER

TOTAL WASTE

Speculative Gains Tax

current use property

land-NICU

buildings-NICU

Cigarette

BeverageCaptive Insurance

Sales & Use

Telecommunications

Telephone Company

Bank FranchiseInsurance TOTAL ENERGY

Estate Tax

Personal Income

Fed Payroll tax

Meals & Rooms

Corporate Income

Telephone Property

$2.6B revenue

Design/Administration2004 VT Taxes+FPT

Property Transfer Tax

Other fees

Tobacco Products

Other general taxes

TOTAL AIR AND WATER

TOTAL WASTE

Speculative Gains Tax

current use propertyland-NICU

buildings-NICU

CigaretteBeverage

Captive Insurance

Sales & Use

Telecommunications

Telephone Company

Bank Franchise

InsuranceTOTAL ENERGY

Estate Tax

Personal Income

Fed Payroll tax

Meals & Rooms

Corporate Income

Telephone Property

$2.6B revenue

Design/Administration

VT Taxes+FPT 2004 REVISED

Other fees

buildings-NICU

Tobacco Products

Other general taxes

TOTAL AIR AND WATER

TOTAL WASTE

TOTAL CHEMICALS

Speculative Gains Tax

current use property

land-NICU

CigaretteBeverage

Captive Insurance

Sales & Use

Telecommunications

Telephone CompanyBank Franchise

Insurance

TOTAL ENERGY

Estate Tax

Personal Income

Property Transfer Tax

Meals & Rooms

Corporate Income

Telephone Property

$2.6B revenue

100% Green TAX shift-2004Carbon $300/ton

Land 9.6%

Waste $2/bag

Water 1c/gal

>100gals

Chem

product fee

$300 on pesticides

$2.6B revenue

2004-100% GREEN

TOTAL ENERGY36.0%

land 54.5%

TOTAL WASTE5.9%TOTAL CHEMICALS

0.1%

TOTAL AIR AND WATER3.5%

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.