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 – Examples To 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 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. 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 0 FICA employee $956 $956 $1912 $15$20K $79 $1340 $1340 2680 $25$30K $633 $2486 $2486 $4972 $10$15K FICA Selfemployer employed 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 Captive Insurance Insurance Bank Franchise Telephone Company Telephone Property Telecommunications Cigarette Tobacco ProductsTOTAL ENERGY Beverage Other general taxes Other fees TOTAL WASTE TOTAL AIR AND WATER Speculative Gains Tax current use property Corporate Income land-NICU Meals & Rooms Sales & Use Estate Tax buildings-NICU Personal Income Property Transfer Tax $2.6B revenue 2004 VT Taxes+FPT Fed Payroll tax Design/Administration Captive Insurance Insurance Bank Franchise Telephone Company Beverage Cigarette Tobacco Products Other general taxes Other fees Telephone Property TOTAL ENERGY 2004 VT Taxes+FPT TOTAL WASTE TOTAL AIR AND WATER Speculative Gains Tax Telecommunications current use property Corporate Income land-NICU Meals & Rooms Sales & Use Estate Tax buildings-NICU Personal Income Property Transfer Tax Fed Payroll tax $2.6B revenue Design/Administration Captive Insurance Insurance Beverage Cigarette Tobacco Products Bank Franchise Telephone Company Other general taxes VT Taxes+FPT 2004 REVISED TOTAL ENERGY Other fees Telephone Property Telecommunications Corporate Income TOTAL AIR AND WATER Meals & Rooms Sales & Use TOTAL WASTE Estate Tax TOTAL CHEMICALS Speculative Gains Tax Personal Income current use property land-NICU Property Transfer Tax buildings-NICU $2.6B revenue 100% Green TAX shift-2004 2004-100% GREEN Carbon $300/ton Land 9.6% Waste $2/bag 1c/gal >100gals Chem $300 on product pesticides fee TOTAL ENERGY 36.0% Water $2.6B revenue land 54.5% TOTAL AIR AND WATER 3.5% TOTAL WASTE TOTAL CHEMICALS 5.9% 0.1% 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.