Payroll tax changes
From "Suggestions to stimulate economic recovery for Bermudians once Shelter in Place ends"
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Bermuda continues to be an expensive place to live and the Bermuda Government has limited tools at its disposal to address inequalities that exist in our economic system. One important tool for raising government revenues is the payroll tax.
The problem with payroll tax in its current form is that, despite its progressive intent, the tax is often undermined because high earners are often fully insulated from paying the tax as it is sometimes covered by their employer in its entirety.
The reason why this is detrimental is because high income earners are not experiencing a dampening of their earnings in the same way lower income earners are impacted by the tax. This inequality leads to unfair purchasing patterns of consumer goods when, for example, a high-income earner can easily afford Bermuda’s highly priced goods and services while lower income earners struggle to afford their basic necessities.
In order to raise revenues, the Bermuda Government should tap into the salaries of high-income earners by increasing the payroll tax on upper income bands while also prohibiting companies from covering the increased tax on behalf of their high-income earning employee. The government should have at its disposal enough information available to ensure companies do not cover this added tax burden via paying it outright or through unusual salary increases during a time when very few people are receiving salary improvements.
The benefits of this approach are that it will raise government revenues, reduce the common complaint that the cost of doing business in Bermuda is high and, most importantly, improve income equality by reducing the earnings gap between high-income and low-income earners. In my opinion, there is limited downside since Bermuda still continues to be an attractive place to live and work and the supply of labour in these high-income positions is relatively inelastic.
It is time for a more equitable payroll tax structure on the island and the above approach is one way to help address this ongoing inequity.
