I know Nicholas Sarkozy has proposed it and now it is catching on: the latest craze is tax-free overtime. Malta is the latest mimic. As Maltatoday reports:
Alfred Sant has once again set the country's agenda by proposing that all overtime should be made tax-free.
You just have to presume those who propose these things are either mad, naive or are trying to undermine the tax system. There's no other possible explanation.
As has been reported of the Maltese proposal:
[The] proposal has been met with scepticism by former finance minister Lino Spiteri and veteran economist Karmenu Farrugia, who have warned that if overtime taxes are removed, employees will be encouraged to shift income from their basic pay, which will still be taxed, to overtime hours which will become tax-free.
Too true. But let's imagine the benefit to the self-employed for a moment. They will set a basic hourly working requirement of 35 hours a week for which they will pay minimum wage or little more, and then pay massive overtime rates. It would make the dividend wheeze that is currently causing so many problems in the UK look like small beer by comparison.
This idea is mad. I just hope the French realise that is the case before they try it.
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That actually would make sense in the US. It will benefit those who make the least and not really benefit the rich at all (because many take advantage of other tax scemes)
To get overtime, in general you need to work 40 hours, with overtime defined as 1.5 times your normal salary. Even if the normal work week is 37.5 hours, you get regular pay up to 40 hours.
One problem with doing this in the US, is that the bottom half of employed people already pay little or no tax to take advantage of this. Single people would most likely benefit more.
One downside not mentioned, if people are more willing to work overtime, then less employees would ne needed. Not exactly helpful to reducing unemployment.
Fred
Can I ask a serious question?
Do you undertsand tax? And are you a tax practitioner?
I find it hard to believe either
Richard
Do you undertsand tax?
– Yes
And are you a tax practitioner?
– No
I pay taxes. Lots of it. I have paid income tax both in the US and in Finland. I have no problem paying tax. I understand the purpose.
So what is your problem with my current comments? at least in the US, managemetn is payed a fixed amount. No overtime, no benefit. Regular employees have the option of overtime. Not taxing overtime is a benefit for the poor. In effect, a rebate on the taxes they have paid.
I myself am against all of these gimmics. Taxes should be kept simple, fair and also have the appearance of being fair.
Fred
Simple tax is unfair tax. Almost always.
Take flat taxes as an example
I’m afraid that you comment does suggest you do not understand the complexity of tax – and the necesity for that complexity if it is to be fair in a modern economy
Richard
If there’s no tax on overtime, then surely that could be used to coerce employees into working even more overtime?
M
“I’m afraid that you comment does suggest you do not understand the complexity of tax – and the necesity for that complexity if it is to be fair in a modern economy”
– Come on now. what are you, a cartoon character? Take your comment above. you simply dismiss the issue out of hand because it is open to abuse. What form of taxation is not? Really, now about defining what overtime is, such as ‘up to 2 times basic pay’ and then defining how many hours of work must be performed before overtime can be considered tax-free. Nope. Not here, the idea is stupid because some people may pay less tax.
And what about flat taxes:
– Person 1 earns $1,000,000
– Person 2 earns $100,000
At a flat rate tax of 10%:
– Person 1 is taxed $100,000
– Person 2 is taxed $10,000
The less you make, the less you are taxed. However, you are more likely to benefit from Government social programs. Why is the equation above ‘unfair’?
This discussion is all one-sided anyway. Tax revenue is only half of the equation. how it is spent (and wasted) is the other half, often ignored.
Fred
A cartoon character is two dimensional.
So is a flat tax.
So are your arguments.
And if you want a counter argument to those you propose on flat taxes, I suggest you explore the theory of the marginal utility and then apply it to cash earnings and you will appreciate that the only just tax system is one that charges tax so that the utility of the sum paid in tax is eqalised across income bands. This requires progressive taxation.
In addition, as I have shown here, http://www.accaglobal.com/pubs/publicinterest/activities/research/publications/tech-ft-001.pdf, flat taxes are neither flat, nor fair.
I close this debate at this point unless you have more useful things to say.
Richard
Thanks for the document. Printed and ready for evening reading. I was going to mention regressive tax, but I see that it is mentioned in the document you linked to as well.
Wow – isn’t it amzing how mant times Richard dismisses comments that he doesn’t agree with as not woirthy of consideration – I think Fred shows remarkable restraint here. I don’t hind behind pseudonyms on web sites, and I know Richard doesn’t either but is seems that every time I read through one of the idaes and responses on this site Richard says I won’t accept further discussion! Sorry – but if you open yourself to public debate then unless it is unacceptably abusive you accept whatever comments you get. AS RICHARD SAYS ABOVE – “I close this debate at this point unless you have more useful things to say” – well that is really going to encourage free and frank discussion. I wonder if this posting will be accepted – over to you Mr Murphy.
Paul
If it keeps you happy, I’ll let it though.
And like all editors, the world over, I reserve the right to accept or decline contributions using value judgement to determine what is acceptable, credible and relevant.
Many people post here regulalrly because I can almost guarantee that they will meet this criteria.
The libertine Right rarely does so.
Regards
Richard