House minority urges prudence on flat tax

The House minority expressed caution on the proposed implementation of a flat tax system, citing the lack of a study or findings on the issue.

Minority bloc designated spokesman Rep. Ramon Tebuteb said that since the proposal aims to effect a substantial change in the taxation system, findings must be presented with the bill.

“There’s no finding as of now. Normally, if you submit something, there should be some finding,” said Tebuteb.

He said that, while the bill cites good points for an improved taxation system, “the other side must be looked at as well.”

“There should be a careful study of this proposal. It’s safe to go slow and make sure we see both sides because if you say it’s good, it may not be good for others,” said Tebuteb.

The House leadership has already formed a task force to review the possible implementation of a flat tax system in the CNMI.

House Speaker Benigno R. Fitial met Monday with representatives from business groups, accountants, corporate lawyers, and officials from the Division of Tax and Revenue to discuss the plan.

The measure, H.B. 14-203 or the proposed Tax Reform and Simplification Act, aims “to simplify the tax system [and] repeal wage and salary tax and earnings tax by enacting a Commonwealth flat tax of 10 percent based on total income from sources within the CNMI.”

The bill, introduced by House Ways and Means Committee chair Rep. Norman S. Palacios, also aims to require a deduction for all premiums paid for the purchase of health insurance by self-employed individuals and employees whose employers do not provide, or are not responsible for medical costs.

In general, critics cite that imposing a flat tax favors the wealthy and high income people in the sense that it is a tax on earned income or working people’s wages, “from which rich people’s unearned income such as capital gains, interest and dividends would be exempt.”

House leadership spokesman Charles Reyes said, though, that this is not a correct analysis, citing that since it is flat rate, it would in fact promote fairness in taxation.

“It does not mean that people would be paying the same regardless of income. It will still result in high-income people paying more for tax,” he said.

Rep. Justo Quitugua said the reason why the leadership is tapping the task force’s input “is primarily to ensure that it’s going to be fair.”

“The leadership is not rushing into this. We’re taking time to study [the proposal] so that we can come out with a fair law,” he said.

The proposed measure provides for exemptions for dependent and child support from taxable income and housing exemption for self-employed people.