Great News, the Income Tax Is Being Abolished! (but Read the Fine Print)

There is some very good news to share. The income tax will disappear in April!

But there’s also some bad news. The income tax is only being abolished in the Caribbean nation of Antigua and Barbuda, and there’s little reason to think that America’s awful internal revenue code will disappear anytime soon.

Nonetheless, we should celebrate this development because it shows that fiscal mistakes can be reversed.

A report from Caribbean News Now has some of the highlights.

The people of Antigua and Barbuda will from April receive tax relief when the government plans to abolish personal income tax (PIT).  PIT, introduced by the now opposition United Progressive Party upon coming into office in 2004, imposes a tax of 8% on residents earning an income above $3,500 and 15% on those earning an income above $25,000. …Prime Minister Gaston Browne…noted that previous Antigua and Barbuda Labour Party administrations governed Antigua and Barbuda successfully for 27 years without personal income tax. He said that the cost of collecting PIT, the difficulty of enforcement, and its unfairness, make it sensible to remove the PIT from the books.

Wow, the Antigua and Barbuda version of the Labour Party obviously is much better than the crazed British version.

But let’s not get sidetracked. Here are some additional details from a story in the Jamaica Observer.

Prime Minister Gaston Browne yesterday announced that, effective April, personal income tax will be abolished in its entirety. …”Abolishing personal income tax is an important reform. Not only will it put more money in the pockets of the people, so that they can save or spend more for the benefit of the economy as whole, it will help to re-establish our country as one of the most competitive in the Caribbean and beyond.” …He noted that with this move, Antigua and Barbuda will be a location that is competitive and also the choice of retirees.  “Antigua and Barbuda will become a competitive location to attract the headquarters of companies and for professionals to relocate, thereby creating more jobs. Retirees will choose Antigua and Barbuda as their retirement home; Citizenship by Investment Programme (CIP) investors will invest and choose Antigua and Barbuda over our competitors,” said the prime minister. …”taxing income is destructive to investment, savings and consumption. Also, it penalises entrepreneurship.”

For a politician, Mr. Browne has a good understanding of economics. I don’t like the “money in the pockets” rhetoric because it implies a bit of Keynesianism, but everything else he said is based on solid, microeconomic observations about incentives. Very reminiscent of JFK.

And I also like his point about wanting to be a “competitive location.” Yet another example of why tax competition is such a wonderful force for good policy. It encourages governments to do the right thing even when they don’t want to.

I bet, for instance, that the good reform in Antigua and Barbuda will put an end to the suicidal talk of an income tax in the Cayman Islands.

But what about the United States? Is there any chance that good policy in the Caribbean will encourage tax reform in the United States?

Unfortunately, most politicians couldn’t find Antigua and Barbuda on a map, much less care about that nation’s fiscal policy. So I’m not holding my breath that we’ll reverse the horrid mistake that was made in 1913.

But maybe, just maybe, we can at least figure out a less corrupt and less destructive way for the politicians to grab our money.