Proposed 30% Middle Rate Tax Band

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Baby boomer

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New ‘middle’ income tax rate of 30% is under consideration (via @IrishTimes) https://www.irishtimes.com/news/pol...x-rate-of-30-is-under-consideration-1.4834353

Apparently, Leo has asked Paschal to "consider" this. And it seems to be a government initiative not merely an FG one. It's not the worst idea in the world I suppose, although it falls far short of simply raising the top rate band to a realistic level, say ~€60k as in the UK. Or cutting back on the combined Tax+PRSI+USC penal rates in excess of 50% on very modest incomes.

My two concerns would be:
- this will "bake in" the unnaturally low ceiling to the basic 20% rate.
- this is mere kite-flying like a previous FG promise to to abolish USC.
 
The issue with the Irish personal taxation system is that the lower rate kicks in very late so low-income people don't pay much tax at all*. The second issue is that the higher rate kicks in quite early, €36k is well below average full-time earnings which are something like €45k.

You can do something for people in the middle if you want. But if you fiddle with the system at all you very quickly make low-income people worse off (or at least no better off) and all high-income people better off.

You can't make a very progressive system much more progressive than it already is.



*indirect taxes like VAT, excise, etc, are quite high and fall disproportionately on people with low incomes of course.
 
NoRegretsCoyote said:
The issue with the Irish personal taxation system is that the lower rate kicks in very late so low-income people don't pay much tax at all*. The second issue is that the higher rate kicks in quite early, €36k is well below average full-time earnings which are something like €45k.

You can do something for people in the middle if you want. But if you fiddle with the system at all you very quickly make low-income people worse off (or at least no better off) and all high-income people better off.

You can't make a very progressive system much more progressive than it already is.



*indirect taxes like VAT, excise, etc, are quite high and fall disproportionately on people with low incomes of course.
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Maybe the system is already too progressive? Note that is it often described as the most progressive in Europe (for some reason, this seems unquestioned as "a good thing") but it is also intensely redistributive in nature. Those who pay the most get the least benefits (unlike, for instance, the oft-lauded Scandinavian model) while those who never pay anything "qualify for everything" to quote the aforementioned Leo back when he really seemed to believe in cutting taxes.
 
NoRegretsCoyote said:
Maybe, maybe not! But it's hard to make it more progressive.
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That's true I suppose. But should we be even trying to do so?


NoRegretsCoyote said:
Indirect taxes are high and fall heaviest on low-income people.
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Hmmmm? If by low income, you mean low wages, yes, but only to a point. Indirect taxes are low to middling on food, clothing and domestic energy. They are steep on household goods, furniture etc, etc. They are eyewatering on drink, cigarettes and particularly savage on motoring.

However, if by low-income you mean social welfare exclusive recipients, then effectively their indirect tax rate is zero as the taxpayer is actually handing them the money to pay the indirect taxes!
NoRegretsCoyote said:
You have to look at the whole mix, not just personal income taxes.
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True, but personal taxes as a whole are very severe on very modest levels of income with precious little in return, compared to other comparable countries.
 
Baby boomer said:
Indirect taxes are low to middling on food, clothing and domestic energy. They are steep on household goods, furniture etc, etc. They are eyewatering on drink, cigarettes and particularly savage on motoring.
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This report from 2014 has some issues but makes the point that low-income people do pay a good share of their income on tax. It's just almost all indirect taxation.


Key chart is here.
 
NoRegretsCoyote said:
Everyone has their biases - debate them on the facts please!
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It is always interesting to notice where the other party is coming from. The Nevin Institute is funded by the trade union movement, not that I've any objections to that. But it does mean that it will start from considerably left of centre.

And just to clarify, I find it's output to be well put together and professionally done. You just have to be aware of the underlying assumptions! In this case, there's an assumption that indirect taxes for the lowest decile are a tax on their income. I would say that's hardly true when the State is handing them the very money used to pay those indirect taxes! Put it this way - I wouldn't mind paying 99% tax on my income if the State gave me enough free money to do so.

There's another truly extraordinary odd feature in that Nevin report. It seems that lower deciles spend more than their gross disposable income while higher deciles spend less than their gross disposable income! For instance, the lowest decile reports gross disposable income of €9857 but actual expenditure of €18,459! Are alarm bells going off at this point?? Especially when the figures for indirect taxes paid are calculated based on actual reported expenditure but the percentages are based on gross income! This discrepancy is very briefly noted in the report but there's no attempt to get to the bottom of it. It's very hard to spend twice your total disposable income!!

Obviously, the discrepancy at the higher end can be and probably is accounted for by savings and investments eg the highest decile had gross disposable income of €119k and expenditure of €89k.

But if the purpose is to try and establish that lower income groups pay a higher percentage of their income in indirect taxes, it serves that purpose very well indeed.
 
Baby boomer said:
There's another truly extraordinary odd feature in that Nevin report. It seems that lower deciles spend more than their gross disposable income while higher deciles spend less than their gross disposable income! For instance, the lowest decile reports gross disposable income of €9857 but actual expenditure of €18,459! Are alarm bells going off at this point?? Especially when the figures for indirect taxes paid are calculated based on actual reported expenditure but the percentages are based on gross income! This discrepancy is very briefly noted in the report but there's no attempt to get to the bottom of it. It's very hard to spend twice your total disposable income!!
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Well spotted. As I said, the report has its issues.

The broader point however is that low-income households do pay tax because they consume and it's impossible to consume without paying tax.

Baby boomer said:
Put it this way - I wouldn't mind paying 99% tax on my income if the State gave me enough free money to do so.
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About half the "Free money" of the social welfare system is linked to PRSI payments made in the past: disability, unemployment, pensions, etc.
 
I remember when the crash hit initially, the first thing that became apparent to Brian Lenihan was the sheer volume of people in this country who had been removed from the tax-net. He attempted to address it with the USC etc, and it wasn't long before the main policy objective was to again remove as many people as possible from the tax net rather than reforming the whole tax system. The problem with removing more and more people from the tax net is how difficult it is to reverse, and politically can only really be done when we are in severe crisis mode.
 
Baby boomer said:
% There's another truly extraordinary odd feature in that Nevin report. It seems that lower deciles spend more than their gross disposable income while higher deciles spend less than their gross disposable income! For instance, the lowest decile reports gross disposable income of €9857 but actual expenditure of €18,459! Are alarm bells going off at this point?? Especially when the figures for indirect taxes paid are calculated based on actual reported expenditure but the percentages are based on gross income! This discrepancy is very briefly noted in the report but there's no attempt to get to the bottom of it. It's very hard to spend twice your total disposable income!!
...
But if the purpose is to try and establish that lower income groups pay a higher percentage of their income in indirect taxes, it serves that purpose very well indeed.
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If a non-left think tank had arrived at such a conclusion on foot of such dubious "evidence" (in actual fact, barely credible back-of-an-envelope calculations) they'd be laughed off the stage.

There is no way in the wide world that the lowest decile of earners is spending on average 1.87 times their gross disposable income.

And there are other inconsistencies. For example if as I suspect, they're including in that statistic students whose purchases are being paid for in full or in part by their higher-earning parents, it is actually the parents who are paying the VAT element of these purchases.
 
Purple said:
They have far more than biases. They are a Trade Union funded disinformation body with zero credibility. Only the Sticky’s in RTÉ present their propaganda as fact.
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Don't forget the stickies in that notorious hotbed of Marxism, Murdoch's Sunday Times;

www.thetimes.co.uk

Nevin Economic Research Institute (Neri) says Ireland has capital underspend

The government should increase spending on large infrastructure projects and education to address an estimated €3 billion shortfall in capital expenditure, a th
www.thetimes.co.uk www.thetimes.co.uk

And the lefty pinkos of Marxist ideology at the Sunday Business Post;

[broken link removed]

And not forgetting the Trotskyite rebels at what was then Denis O'Brien's Independent Newspapers

www.independent.ie

Private debt levels 'dangerously high', Neri director warns

The level of private debt in Ireland is "dangerously high" as economic growth is inevitably going to slow down, the director of the Nevin Economic and Research Institute (Neri) has warned.
www.independent.ie www.independent.ie
 
Rasputin said:
I remember when the crash hit initially, the first thing that became apparent to Brian Lenihan was the sheer volume of people in this country who had been removed from the tax-net. He attempted to address it with the USC etc, and it wasn't long before the main policy objective was to again remove as many people as possible from the tax net rather than reforming the whole tax system. The problem with removing more and more people from the tax net is how difficult it is to reverse, and politically can only really be done when we are in severe crisis mode.
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As noted above, the tax system is wider than just income tax / USC.
 
RetirementPlan said:
Don't forget the stickies in that notorious hotbed of Marxism, Murdoch's Sunday Times;

www.thetimes.co.uk

Nevin Economic Research Institute (Neri) says Ireland has capital underspend

The government should increase spending on large infrastructure projects and education to address an estimated €3 billion shortfall in capital expenditure, a th
www.thetimes.co.uk www.thetimes.co.uk

And the lefty pinkos of Marxist ideology at the Sunday Business Post;

[broken link removed]

And not forgetting the Trotskyite rebels at what was then Denis O'Brien's Independent Newspapers

www.independent.ie

Private debt levels 'dangerously high', Neri director warns

The level of private debt in Ireland is "dangerously high" as economic growth is inevitably going to slow down, the director of the Nevin Economic and Research Institute (Neri) has warned.
www.independent.ie www.independent.ie
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Journalism by press release.
 
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