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Fair tax cuts would be for all, not just high-income earners : Comments
By Andrew Bartlett, published 7/5/2004Andrew Bartlett calls for tax adustments that benefit low-income earners rather than the rich
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Posted by Andada, Saturday, 19 May 2007 4:13:18 AM
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An increase in the tax-free threshold will not make our current tax system fairer – if fairness is defined as redistributing income to the low-income earners. It would reduce the tax bills of every taxpayer – not only the poor, but also the rich. What would be the outcome if the government implemented the $10,000 tax-free threshold proposed by Senator Bartlett? The poor would have an extra ($10,000 - $6,000) x 17% = $680 tax savings in their pocket, and so would the rich. It would not produce any improvement in fairness at all. The poor would be $680 less poor and the rich would be $680 richer. An increase of $4,000 in the tax-free threshold would fail to achieve the fairness test that Senator Bartlett was arguing for.
The solution to address the issue of fairness is to increase the low-income rebate, not the tax-free threshold. Let me explain how the tax rebate works. The amount of the low-income rebate announced in the 2007 Budget is $750, reduced by 4 cents for every $1 of the amount (if any) by which the taxpayer’s taxable income exceeds $30,000. As a result,
(a) Taxpayers – living below the poverty line – with income up to $11,000 will pay no tax at all because their individual tax liability of ($11,000 - $6,000) x 15% = $750 will be completely offset by the $750 rebate;
(b) Taxpayers with taxable income of up to $30,000 will pay $750 less tax;
(c) Taxpayers with taxable income of up to $48,750 will receive some reduced rebate.
What about the rest? The taxpayers with higher income (more than $48,750 a year) will completely miss out on this rebate – which is specifically designed to target only those who earn less than $48,750. Tax rebate is a distortion designed to target a particular group of taxpayers; however it fulfils the role of redistribution.
Low-income rebate is one of the best solutions to address the issue of fairness. It is a tax policy that the Democrats would love to have.