Key Post How much do the top earners pay in income tax?

Brendan Burgess

Brendan Burgess

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Thread summary. Thank you all for providing links and useful information.

There is a general belief out there that top earners pay little or no tax. For example Complainer in says " the real tax rate of high earners is anywhere from 0%-20%." This widely reported misconception is based on government data which showed that 359 people, earning over €250,000 who took advantage of tax incentive schemes paid between 0% and 20% income tax. However, 9,600 other people earning over €250,000 did not take advantage of these schemes and so paid the normal tax and PRSI.

What are the facts?

Take Ronan Lyons' quiz here before looking at the following answers. ( I got one answer right out of three!)

  1. Option 4 – the average millionaire pays six times the income tax rate of the average worker. There’s one thing the system ain’t and that’s regressive!
  2. Option 5 – amazingly, two thirds of the 2.2m people paying income tax in Ireland paid an average rate of less than 10%.
  3. Option 1 – as per above, the median earner pays about 4% in income tax in Ireland, compared to 20% in the OECD.

Karl Whelan provides an Excel SpreadSheet with the detailed information here for 2006

income number of cases tax rate
75000-100000 88557 22%
100000-150000 52693 27%
150000-200000 13856 31%
200000-275000 7673 34%
Over 275000 8496 33%

I think that this is income tax only. For 2009, you can add an average of around 7% in Social Insurance, Health and Income Levies.

By comparison, in 2007, an employee on the average industrial wage pays negative tax. I.e. they are a net beneficiary of subsidies!

Ireland taxes its average worker the least of the 28 developed economies in the OECD in six of the seven different measures of average ‘all-in’ tax that the OECD produces. Only for single workers without children did one country, Korea, tax less than Ireland in 2007.
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Re: How much do the top earners pay in tax?

Hi WaterSprite

Garret Fitzgerald's Irish Times article is [broken link removed]

These figures are based on data furnished by governments, and they cover three income levels, ranging from two-thirds to one-and-two-thirds times the average wage.



Precise figures for the average wage are not given, but last year average income here must have been close to €40,000, so in this table we are looking at incomes of about €27,500, €40,000, and €67,500.


It will be seen that at the €27,500 income level the tax plus PRSI paid by a single person last year was less than one-third of the average western European rate and no more than half at the €40,000 level.





A one-earner married couple with an average income paid only one-quarter of the European tax rate.


However, at the €67,500 salary level our tax rate last year was about three-quarters of the western European average.


In the light of those comparative figures it is clear that a large part of our present budgetary difficulties derive from the fact that, in respect of taxes on income, we are grossly under-taxed.
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Unfortunately , the table is missing, but it suggests that higher earners (€67,500 level) pay around 75% of what they would pay in other countries, but low earners (€27,500) pay only 33% of what they would pay in other countries.

This suggests that the burden of tax falls on the higher paid.
 
Re: How much do the top earners pay in tax?

Here we go, the Revenue's statistical report:

[broken link removed]

Especially the chapter on tax paid by income.


NB: gross income here is defined as P60 income, that is after pension contributions (work + often AVCs).

This does not give a full picture of true gross earnings.

You may earn 60k, but may pay 6.5% superannuation and 20% AVCs, so your P60 income is less than 45k.
 
Re: How much do the top earners pay in tax?

Moderator's note: This post refers only to the 359 earners who availed of the tax reliefs which were subsequently restricted. It does not refer to all 10,000 people who earned in excess of €250,000.


This is a DoF report on high earners, and the effects of the introduction of a restriction on the excessive use of tax reliefs to reduce ATRs.

http://www.finance.gov.ie/documents/publications/reports/2009/analytaxrestrict09.pdf


Have a look at table 1A. Before the restriction, the average ATR was less than 9%. Yes, less than 9% tax paid by 214 people with incomes above 500k.

After the restriction, the ATR became 20%.

So when the Govt announce that high earners are paying such a high share of all income tax, say to yourself, well that is how it should be. Rich people should pay a lot of tax, that's the whole point of a progressive tax system. They pay a lot because their incomes are so strong.

Indeed, the data shows us that the top 214 people, earning above 500k, pay an average ATR of 20%. Hardly oppressive.

Note, none of the 500k+ people paid more than 25%.

Turning to the high earnerswith incomes below 500k, their average ATR was 7%, but due to the restriction, it increased to 14%.
 
Re: How much do the top earners pay in tax?

Here's Colm Keena's analysis of the Revenue release of tax figures from 2003

[broken link removed]

This includes details of the €100m+ individual pension funds, and the very low effective tax rates.
The study examined the income tax affairs of the State’s 400 top earners and found that 80 had paid income tax at an effective rate of less than 15 per cent. Three paid no tax at all, 45 paid at a rate of less than 5 per cent, and 17 paid tax at rates between five and 10 per cent.
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I guess it is not unreasonable to assume that the income figures were significantly higher in 2007.
 
Re: How much do the top earners pay in tax?

Protocol said:
Indeed, the data shows us that the top 214 people, earning above 500k, pay an average ATR of 20%. Hardly oppressive.

Note, none of the 500k+ people paid more than 25%.
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Protocol

This document is badly written and so has been frequently misinterpreted.

I discussed it at the time of its release here.

income number of cases tax rate
75000-100000 88557 22%
100000-150000 52693 27%
150000-200000 13856 31%
200000-275000 7673 34%
Over 275000 8496 33%

From the spreadsheet attached to this article, there were around 10,000 people who earned in excess of €250,000.
Of those, only 359 took advantage of these reliefs.

So your comments and conclusions are based on fewer than 3% of the people who earned over €250,000. The vast majority of high earners pay a much higher effective tax rate.

So, as I point out in the thread to which I have linked, a person on €500k pays an effective tax rate of 37%. The more you earn, the closer your effective tax rate comes to 50%.
 
Re: How much do the top earners pay in tax?

Folks

I am trying to collect facts in this thread. And to clarify these facts as well.

I have deleted discussions around these facts as they are distracting from the difficult task at getting at the facts.

For example -
" VAT should be increased and Income tax should be reduced"
"income tax should be raised on higher earners"


feel free to discuss this in another thread.
 
Re: How much do the top earners pay in tax?

OK, fair enough, your point is that the tax reliefs restrictions report only focuses on a small subset of high earners. That seems to be the case.

Still, it does show that a (small) minority of high earners pay much less income tax than we would expect them to pay.



OK, to improve the data, I looked at all workers, in the final section of Table 1DS1 from the Revenue Connissioners:

[broken link removed]

Of the 2,261,136 income tax cases (not equal to people), the top 0.5% of them earned over 9% of all the income. They paid 17.50% of all the income tax.

Their ATR was 27.5%. Again, this is not too high.

NB: can somebody check these calculations for me? I think they are correct.


The average ATR of the top 1/2 percent of earners is 27.5%. I feel that this could be increased, to, say, 35%.

This would help the public finances.
 
Re: How much do the top earners pay in tax?

Complainer, quoting Colm Keena back in 2003

The study examined the income tax affairs of the State’s 400 top earners and found that 80 had paid income tax at an effective rate of less than 15 per cent. Three paid no tax at all, 45 paid at a rate of less than 5 per cent, and 17 paid tax at rates between five and 10 per cent.
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Hi Complainer

Most people are not good at understanding statistics and it's very important to fully understand this information, even if it does date from 6 years ago before the various restrictions were brought it.

3 paid no income tax
142 paid income tax at less than 15%
255 paid income tax at more than 15%

Unfortunately, this gives us very little information about the 225. Did they pay tax at 40% or at 16%?

Of these 400, how many of them were availing of the artists' exemption? People who are only in this country for the tax breaks and would not be here otherwise?

And again I am not sure if they are referring to the Top 400 earners or "The Top 400 earners who availed of Tax Reliefs".
I suspect it is the latter.
 
Re: How much do the top earners pay in tax?

Brendan said:
So, as I point out in the thread to which I have linked, a person on €500k pays an effective tax rate of 37%. The more you earn, the closer your effective tax rate comes to 50%.
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Why do you exclude the income levies? Using the hookhead tax calculator, a person on €500,000 would pay 39% if you just look only at standard taxes (20% & 41%), 42% if you include incomes levies and 48% if you include prsi/helath levies.
 
Re: How much do the top earners pay in tax?

Protocol says

The average ATR of the top 1/2 percent of earners is 27.5%. I feel that this could be increased, to, say, 35%.
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Brendan says
Over 275000 8496 33%
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My gut feeling is that the top 1/2 per cent of earners may well be comprised of the Artists who are here to avail of the tax exemption. I think that their maximum tax rate is around 25%.

So the issue is should the marginal rate of tax be increased from 50%?
Should we abolish the tax exemption for artists earning over €200k?



Brendan
 
Re: How much do the top earners pay in tax?

My feeling is that these 11,714 cases earning over 275k in 2006 are medical consultants, pharmacists, barristers, property developers, senior executives, etc.

Of the 11,714 cases, can many be artists? Maybe 500 max???

They earned 7,620m, or an average of 650k each per case.

They paid 2,096m in tax, or an average of 179,000 each.

Their average ATR is 27.5%.
 
Re: How much do the top earners pay in tax?

Hi Protocol

I doubt if there will be many property developers or pharmacists in the group in 2009 or for the next few years.

I think you are approaching it the wrong way. You can't call for an increase in the ATR for the top .5% of earners. You have to call for an increase in the marginal rate of tax and an end to to tax incentives.

As I want to try to establish the facts in this thread, I have kicked off the debate on tax rates over .

Brendan
 
Re: How much do the top earners pay in tax?

There is a very bad table in today's Irish Times under an article entitled
[broken link removed]

The table is very hard to understand, but here are the figures for those paying more than €1m

Gross income: 3.68%
Total Tax paid: 7.86%
Income Levy: 6.65%

(The figures for the lower earners are 26%;6.51% and 25.78%)

Anyone wanting to show that the rich don't pay taxes will quote these figures. For example "Those earning over €1m pay only 7.86% of their income in taxes"

But actually, these figures mean the following, although it takes a while to figure it out.

Those earning over €1m account for 3.68% of the total income.
Those earning over €1m pay 7.86% of the total tax take.
Those earning over €1m pay 6.65% of the total income levy.
So the top 0.07% of taxpayers (those earning over €1m) pay 7.86% of all income tax.
 
Re: How much do the top earners pay in tax?

Brendan said:
My gut feeling is that the top 1/2 per cent of earners may well be comprised of the Artists who are here to avail of the tax exemption. I think that their maximum tax rate is around 25%.

So the issue is should the marginal rate of tax be increased from 50%?
Should we abolish the tax exemption for artists earning over €200k?
Click to expand...

Of the 359 in 2006 earning more than €250k who took advantage of these schemes, 76 were artists according to this article:

[broken link removed]

This has been somewhat addressed by the cap of €250k on the artists' exemption scheme introduced in 2007.
 
Brendan Burgess said:
Folks

I am trying to collect facts in this thread. And to clarify these facts as well.

I have deleted discussions around these facts as they are distracting from the difficult task at getting at the facts.

For example -
" VAT should be increased and Income tax should be reduced"
"income tax should be raised on higher earners"


feel free to discuss this in another thread.
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Which part of this do you guys not understand?

Do not take this important Key Post off topic. If someone else does, there is no need to respond to them. ignore the post or report them.

If you have additional facts to add to the question, do so.
 
Brendan Burgess said:
If you have additional facts to add to the question, do so.
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Here's one important additional fact. This thread appears to assume that income tax is the only tax. VAT brings in more for the state than income tax. Everyone who lives in the state pays VAT.

Perhaps the thread title should be changed to reflect the narrow focus on income tax.
 
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