Fair Tax

| 05/08/2011

Is it fair that the unemployed construction worker or the minimum wage earner is paying the same tax on diesel fuel used by CUC as the wealthy?  On a percentage basis this is a grossly unfair way of taxing people.  Some will argue that we all pay the same duty on a loaf of bread regardless of our financial position but this is understood and is part of the cost of living in Cayman.

We accept duties on imported goods as an alternative to income tax as a means of generating revenue for government. Fuel is quite a different commodity. We, like most countries, are a fossil fuel based economy. The basic cost of living is affected more by fuel prices than any other single cause. To tax fuel does indeed result in more revenue for government but has the damaging effect of increased cost of living, reduced GDP and higher unemployment.

Unlike the loaf of bread, fuel is an unavoidable necessity, even more so than toilet tissue. If the cost of toilet tissue became too expensive due to government tax then some people would find alternatives. We have no alternatives when it comes to fuel.

I am proposing that the current fuel tax on CUC diesel be implemented in a way that is fairer to the population as a whole.

The following table of a graduated tax is an example

Monthly Usage                              Tax Per Gallon

500 KWH or less                              NO TAX
501 KWH to 1200 KWH                  25 cents
1201 KWH to 2000 KWH                50 cents
2000 KWH to 3000 KWH                1 dollar
Above 3000 KWH                            5 dollars

These figures are not absolute but merely represent the idea of the big (wealthy) users paying a greater percentage of the tax bases on their ability to pay.  It is not Robin Hood, where the rich pay for the poor. It is trying to approach a more fair basis on usage and the ability to pay.

It is important to understand that this graduated tax structure should only apply to residential customers and not to businesses or commercial properties. Business would simply pass the new cost on down to the customer, which would defeat the purpose. Businesses should have their tax reduced or removed to allow for lower cost of operation.  When the working man has to pay more tax he cannot pass the cost to anyone. It becomes his burden alone.

Such a graduated tax structure would result in considerably more revenue for government than the current flat rate system. The increase in revenue could be so great as to allow for the total suspension of the tax on gasoline used for motor vehicles.

This will result in the majority of people having more spending power, which is what creates jobs and drives the economy.

CUC has all of the figures available for calculating the break points and amounts necessary to charge in order for government to reach the desired revenue goal. It would be good for the Electricity Regulatory Board to approach CUC to do some figuring. We all will benefit.

Category: Viewpoint

Comments (41)

Trackback URL | Comments RSS Feed

  1. The Lone Haranguer says:

    Do you know why and when democratic societys fail Bean,

    As soon as the poor and middle class people reilise that they can vote themselves money from the treasury they bankrupt the contry with thier continually escalating demands for more money and more entitilments. The rich people evacuate the situation and move with whatever money has not been looted from them onto greener pastures,

    The contry then begins it's decent into anarcy as the poor and middle class people eat off of one another.

    The civil service and goverment authoritys and thier familys have achieved critical mass and are going to suck the life out of this contry.

    • no point says:

      Dear Lone,

      I'd like to evaluate your point, but your spelling errors are the only items I can focus on.  Here is a good piece of advice if you want to be taken seriously, type your text in a word document, then spell-check it, cut and paste that text into your comment box.

      I may have agreed with some of your points, but if you cannot write as an educated person then I cannot accept you as one.  If you went through the Cayman school system, then you have proven your own point.

      Literacy for all!

      • The lone Haranguer says:

        Dear No point, if you think my english literitcy is bad, my computer literacy is worse. Anyway buddy you could not possibly learn anything from a gas station attendant.

  2. Sane person says:

    Bean Counter's proposal is almost as regressiveas the existing regime.  What about the old lady who lives alone in a big house?

    I have been following these economic blogs for some time and simply fail to understand why Caymanians think that a no income tax system is so great.  Sticking 22% on the price of everything one consumes (and then a huge mark-up on top of that – because the retailer does not need to be competitive) is just about the most regressive, anti-poor, anti-family tax regime one could possibly dream up. 

    It means that the ex-pat professional with no family can come here, earn a packet, consume very little (relatively speaking) and leave after a few years with a huge slug of cash (including his pension) a fair amount of which a sensible tax regime would have taken from him in income or payroll tax.  Overall his contribution to the revenue of the Islands is minimal.  Compare that with the public servant who has a wife and family and is the sole bread winner.  By definition he will consume more because there are more mouths to feed, more bodies to clothe (unlike the ex-pat our Caymanian example cannot go to Miami every three months and buy a new wardrobe so our Caymanian pays a fortune purchasing everything on Island), more rooms in his house to cool, more water to buy to bathe his kids etc.  A tax based on consumption means that over the course of a year, our public servant on a relatively low wage will pay far more of his salary to government through import duty than will the single professional ex-pat.

    Can't be fair. can it? It is totally barking mad.  So dump import duty, tax progressively through income, encourage inward foreign investment and yes, dare I say it, competition and free and freely accessible markets and watch the small man get a huge break and Cayman prosper.

    Success in life is not an entitlement by reason of one's nationality, it has to be earned. It is not the role of the state to wrap its nationals in cotton wool and guarantee them a job, a trade, a profession or a profit, but rather to create the conditions which foster and encourage growth, employment and competitiveness. Somewhere along the line Cayman and its people appear to have forgotten that.

  3. Anonymous says:

    Most of "The Wealthy" weren't always wealthy. They started poor.  While most of their peers thought small and took a payoff early by leaving education and getting whatever work they could to buy tinted windows and extra loud stereos for their cars The Wealthy stayed poor and studied, or took calculated risks with what money they did have, or worked until they dropped to build something out of nothing. They didn't complain that the government should help them because they had less money than their friends or feel bitter towards the people that had succeeded.  Eventually there is a payoff for all of that effort.  And it isn't just The Wealthy that benefit.  Hundreds of people are employed by them.  Government coffers are filled.  The whole economy benefits.  It's petty to forget the sacrifices that these people made and demand that they open their wallets to the lazy and unmotivated.  If you want some of that money, go out and earn it like they did.  It's a free country.

    • Werk Foit says:

      Excellent advice. Very well said. Someone who thinks and speaks as you do should be asked to visit all local school establishments on a regular basis as a motivational speaker AND get paid to do so.

  4. Anonymous says:

    This is exactly what bean counter says it isn't.

    Take more from the rich, to give the government.  It is _exactly_ robin hood rob to rich to feed to poor.

    This is taking money OUT of the economy, for the government to _spend more_ tax dollars.

    What is needed is cutting/limiting _cost_ and _expansion_ and this is doing the exact opposite.

    This is typical socialism pin the poor against the rick policy.  Why stop there?  Why not make the rich (people with house exceeding 500K pay property tax?  Why not increase stamp durty on those who earn above 1 million dollars?

    Typical socialist rubbish.  The perfect way to drive investors our of this country in droves.

    Utter pseudo-economical sense 

  5. Anonymous says:

    I understand your point but the title is wrong.  It should be titled "Unfair tax for charity".

  6. Anonymous says:

    "considerably more revenue for government than the current flat rate system" – Give the government more money to waste?

    "this will result in the majority of people having more spending power, which is what creates jobs and drives the economy." – Too simple, we have a large low income work force here.  The money would just go overseas.

  7. Anonymous says:

    Better idea:  End the CUC monopoly

    • Anonymous says:

      Yep….long overdue!!!!  Remember years ago with Cable and Wireless, the amount we were being charged?  But when Digicel came, all of a sudden Cable and Wireless dropped their rates drastically…

      what is the government waiting for????? people to have candles in their houses because they can't afford to pay the electrical bills???

  8. Anonymous says:

    Cayman's current tax systemis fairer than just about any other. The real problem is that no tax that is raised for the benefit of only a few is a fair tax.

    If the waste was eliminated from government spending much less tax would be needed which would be fairer to all.

  9. Loren says:

    Alternative energy, "The Sun" there is an abudance right here and above all free.  Why won't someone with the capital invest in solar energy?  This is being done in lots of other places. 

    • tim ridley says:

      Alternative energy sources will no doubt become viable over time as they become more economic to buy, more efficient and reliable to operate and oil supplies deplete (a long while yet). But right now, it seems that solar and wind (for example) only "work" if there are huge tax breaks/subsidies for manufacturers and/or users. Since there are no such subsidies or tax breaks in Cayman (nor should there be in my view), thus little alternative energy use here as yet.

       

       

      Tim Ridley

       

      • Anonymous says:

        Yeah, forget all that solar power mumbo jumbo. Lets continue to generate electricity using the most inefficient way possible, plunder the worlds fossil fuels, prop up CUC's bumper profits and continue to deny global warming. Oil price through the roof? Ha, we dont care in Cayman. Do our bit to help? Even bother to look into making solar viable in Cayman? No, of course we should all just look the other way and blame the capitalist system. 

        Sometimes one despairs of the attitude here of people who should know better

        • tim ridley says:

          I am not stopping anyone using solar power if they wish. And wind power. I am simply saying that they are both expensive and not reliable enough as yet to make them economic. And that there should not be "tax subsidies" for them.

           

          • Anonymous says:

            I second that on about tax subsidies.

          • Bai says:

            The money that goes towards unnecessary things can easily go towards alternative energy. However, the key is not to depend on singular methods such as solar and wind. While I agree that the Andasol project is interesting and have researched it in the past, it would take an amount of space that is simply unreasonable. It would better to look at solutions such as waste to fuel energy, processing of waste water, and solar/wind energy in a combined effort that would then tackle waste management in the Cayman Islands and seek to take advantage of the renewable and plentiful resources of clean energy that is available to us.

            However, to the writer of this viewpoint, I see absolutely nothing wrong with taxing the same in fuel to the poor. Fuel is a luxury that is readily available to us at the expense of our environment and the countries produce it. What they need to do, rather, is take the tax money and invest in making Cayman more pedestrian and bicycle friendly so that people are encouraged not to use their cars as it is unnecessary on most occassions. Here, as in the US, they need to realize that increased taxes to the wealthy is practical when going towards services that the public take for granted. I can assure you who the police are keener to help- the wealthy, as oppossed to the poor, for one. On the other hand, this idea that fuel should be available equally to everyone is lacking. Should the rich be taxed more for using cellphones, wearing nice clothes? Luxuries are just that.

        • Anonymous says:

          I think we need more alternative power sources, but from efficiency the diesel generator is around 40% efficient, while the best solar cell is only just reaching 30%

      • Anonymous says:

        Tim, please check out the Solar Thermal installations in Spain called Andasol. They use liquid salt to store hte heat for use at night and on cloudy days. The manufacturer will finance the installation and allow repayment out of profits. An installation to serve all of Cayman would be about 400 million. It could be mounted on pilings over the surface of the North Sound near CUC. CUC could be used as a backup reserve facility. The system would pay for itself in less than 5 years at the current price we pay for power.

         

        • tim ridley says:

          Would this not require panels covering about 200+ soccer fields (in the North Sound)? Tim

          • Anonymous says:

            Correct. Or 200 soccer fields inland somewhere. But the fact still remains that it pays for itself in less than 5 years at our current 37cents per KWH. Parabolic thermal solar has a peak efficiency of 70% and an average efficiency of 50%. CUC's generators are at best 30% efficient. A bigger problem is if we ever do go solar,  how will government make up for the lost revenue from diesel tax?

            • tim ridley says:

              1. Even higher import duties on solar equipment;

              2. Whopping annual licence fee for solar power companies.

               

              Twas ever thus…Tim Ridley

    • tim ridley says:

      Loren, there is nothing to stop anyone putting solar panels on their roof. many people do. Tim Ridley

  10. enviromentalist says:

    Bean counter:

    I think this is a pricing system worthy of CUC having a look at. It has proven to work in Mexico. It is not only providing cheap electricty to smaller usage customers, but it also promotes conservation and cutting back personal usage, thus breeding a entire diffrent way of thinking about smart energy. Do you not think large usage consumers would look for alternative methods to provide electricity, if the cost was so high, and thus decreasing carbon based fuel consumption. Its a no brainer.We have to get away from using desiel to run our electrical needs. CUC should not fear, if the price per amount unit usage is implemented correctily you will still maintain you govt gaurenteed profit margins, and maby if you have any global conceince, reinvest that profit into green alternatives to provide electricty to your loyal customers at an eventually reduced price from sustainable resources,like solar or geothermal or wind or oceanic current harnessing. Just a thought as I sweat out august as I cant afford to turn on the A/C.

  11. Anonymous says:

    This idea won't work Bean Counter like someone else said, I have an average size family (3 kids) but I don't make enough money to pay my bills.  I don't turn on the central air even though my house is 92 degrees in the day.  I don't eat out.  I buy groceries on my way home from work and try to run errands such as banking and paying bills for my elderly father only once a week. I've plugged out the water heater.  Don't use the dryer.  Families use a lot more energy no matter what and they spend more money no matter what.  We have school fees, uniforms, supplies, food, sports programs, etc.  Basically this would penalize families and make them poorer.

  12. Anonymous says:

    Already, if you use less you pay less, it’s just the percentage that is the same. Going to a socialist system only brings the socialist problems along with it. I am not rich, I’ve simply learned to live within my means. Fewer vacations, less eating out etc.

  13. Anonymous says:

    Fair tax??????? HAH!!!!!!

     

    To quote Mel Brooks, "It's good to be the king."

     

     

  14. Anonymous says:

    I'm sorry, but this is a silly idea.  Cayman actually has one of the most fair tax systems in the world.  It is basically a consumption tax.  Just because someone uses more or less electricitydoesn't mean that they are more or less wealthy.  I would agree that there might by some correlation, but does this mean that the rich should pay more duty on other items they consume as well?  There is no true way to establish different taxes / duty for different incomes on this island.  There is no proper way to means test anyone on this island.  I do think wealthy people should pay more for income taxes, but this country does not tax income, it taxes consumption and the wealthy already pay more as they consume more.  If you start taxing / levying duties differently, you are going to change behaviours and ultimately lower the overall tax base.  If you start meddling, people alway figure out how to work around it.  This is exactly why so many U.S. banks, corporations, and insurance companies are on our little island.

     

    Plus, this will be an additonal tax on businesses as they are heavy CUC customers.  Again, the government should not be changing a tax base that hurts business.

    • Anonymous says:

      Try actually reading the article. It excludes businesses for the very reasons you mention. The UK is pushing for income tax here. If that happens the rich will pay far more in tax than they would for higher electricity bills. The point is that 1000 KWH of usage for a low wage earner is a much larger percentage of their pay than for a wealthy individual. Plus, the wealthy probably have well insulated homes, high efficiency appliances, double insulated windows and solar water heating as well as styrofoam sheeting on the exterior. The poor are carrying the weight of this tax. Furthermore, when the rich are given a tax break they are less likely to run out and spend it since their needs are already met. A poorer person will spend every cent they get in tax relief. It is the spending of money that generates revenue for government.

       

  15. Just Commentin' says:

    So you are suggesting that we should reduce or eliminate the tax for businesses so they can lower operating costs and reap more profit at the expense of an already cash-strapped government? That idea is absolute rubbish!

  16. No Obama in Cayman says:

    This is the argument used by the left wing US liberals and socialists.  Fair is when everybody pays the same.  A fixed percentage basis is the epitomy of fairness.  Using the writer's own example, with a flat % tax the person who uses 3000KWH hour is already paying SIX TIMES the amount of tax than the person using 500KWH.  I am talking actual dollars here because that is what matters.

    Fuel is a staple much like bread and other basic groceries.  Is the writer suggesting that we form separate lines at the Grocery store.  People making less than $30k a year could go in one line and receive a discount on their bill (effectively a tax rebate on the import duty).  People making an average wage could be in another line and pay the regular prices and then the wealthy (over $100k a year) could have their own line.  This line should be off to the side away from the riff-raff with a velvet rope and red carpet.  This will make them feel better as they pay higher prices for their groceries to subsidize the lower income people.

    Perhaps the import duty could be set based on the 'stereo-typical' purchaser for example:

       No Duty: Salt fish, Chicken feet, corned beef, white rice, milk, can-cheese

       Regular duty: Grouper, Chicken legs, doritos, hamburger, budweiser, kraft singles

       Double the duty: Jumbo shrimp, cornish game hen, filet mignon, champagne, bleu cheese

    Seriously though, just because a household uses more power doesnt mean it is wealthier.  A large poor family is going to use more electricity than a rich single person.

    • Anonymous says:

      Presidential Candidate Mike Huckabee (Republican) proposed a flat % tax on income thus eliminating the IRS. Imagine someone making 45 million per year paying 10% in taxes. This will hit his pocket in the same way as a person making 20 thousand per year because 10% is 10%. Yes the rich pay more but now the playing field is leveled in terms of pain felt. Warren Buffet also advocates higher taxes on income for the rich. His secretary makes 40 thousand dollars per year and pays more income tax than he does. What is fair about that?

      I am trying to avoid having income tax forced on us. If that day does come I can only hope it is a flat tax so the wealthy will finally pay their fair share. Wealth trickles up, costs  trickle down. The few rich at the top of the pyramid have made their millions of the backs of the masses at the bottom. When a landlord is taxed in an effort to increase government revenue, he passes the tax onto tennants in the form of higher rent. A shop owner will then be forced to pass the higher rent onto the price of goods sold. The customer at  the bottom of the pyramid ends up paying it in the end.

       

       

    • Bean Counter says:

      Your point is well taken. I agree that "Fair is when everybody pays the same" as you said. But the fixed percentage should be applied to income not expense. It is totally unfair when expenses are fixed. I am not advocating for everyone to drive the same car or make the same income. I am a free market capitalist. A large poor family probably does not have air conditioning or hot water or a clothes drier because they cannot afford it. When you make a donation to charity, it is probable that some of that money will go toward free food for the poor. So in essence you are paying for your loaf of bread and theirs. This too is a consequence of free market capitalism. In a fossil fuel based economy there should be no tax on fuel. It just drives the price of everything up and makes life harder for the low wage earners and the poor. My proposal is an attempt to use an existing billing system to increase revenue to government that is doable and preferable to income tax.

      • The Lone Haranguer says:

        Bean if I want to have six children with 2 baby mothers and drive a BMW,if I like my A/C ice cold in my Frank Hall house, and I only make 30 thousnd dollars a year I will be very poor but that is my choice and if you want to give me tax breaks so I can maintain my life style. Thank you.

  17. anonymous says:

    I like this idea for a different reason – more use = more fuel tax would be an incentive for energy conservation. It would make it even more financially beneficial to switch to energy efficient appliances, add insulation, be smarter about airconditioning contrrols, install solar water heating, etc etc. And so would help shift Cayman onto the road away from total dependency on imported oil. That's a shift we'd be smart to make sooner rather than later.

  18. Anonymous says:

    Bean brain, I was with you at first until you started talking about businesses and their saving money to keep prices low for the consumer. What island do you live on. Even talking about taxes will raise the prices. Businesses owners will not decrease prices ever. Get real.

    • Anonymous says:

      This is your wakeup call. I am a local business owner and can tell you from first hand experience the following:

      When government forced businesses to make pension payments and health insurance payments for their employees, I did not raise the price of my products.

      When my landlord raised my rent I did not raise the price of my products.

      When the price of oil went up and my electricity bill went through the roof I did not raise my prices.

      When the government put a fuel tax on my electric bill I did not raise my prices.

      When government raised the duty on imported goods I did not raise my prices.

      When government declares new holidays and I have to either pay my employees double

      or close for lack of customers I do not raise my prices.

       

      I am competing with other businesses for the same customers. The business with the lowest prices and best service will survive.

       

      By now you should be wondering how my business could take all of these hits financially and still be operating. The answer is, I only take personal pay when absolutely necessary in order to cover my living expenses. I have personally absorbed the increased costs of doing business here in order to survive.

       

      I can assure you that if anything reduces the cost of my operation I will pass the savings on to my customers in the form of lower prices. This is how the free market works. The only thing that can destroy it is government interference and greed.

       

      I like Bean Counter’s idea and hope the government considers it carefully. It would be much more fair than what is happening now. I personally would like to see the tax on fuel removed totally but not if that means income tax. Although in my case there wouldn’t be much income to tax.

       

      Bean Counter – YOU ROCK!