Indo - "Almost one in four Irish earners is paying no income tax, says Revenue"

The threshold for paying income tax is well below the threshold for living a decent life in my opinion. These days €20k a year as a single person will leave you struggling to pay rent and with no chance of buying. €30k as a single parent is worse.

It makes a mockery of highest ever employment levels when so many people in employment are living hand to mouth.
 
I would wonder how much undeclared earnings there are out there aswell. What percentage of the tax paying class are Paye workers with tax bring paid directly from wages
 
T McGibney said:
It's still linear, but it was more my point that when property values fall, incomes, prosperity and tax revenues take a bath.
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But not to the same extent, so with a more diverse tax base the effect on revenue is more diffuse.

Famously, one of the (many) problems that the Irish government faced with the 2008 property crash was its heavy reliance on stamp duty revenues. In 2007, 2% of (inflated) Irish GDP accrued directly to the government in the form of stamp duty revenue. By international standards, that was huge. The property crash caused a double whammy here; property values fell and, since stamp duty is a percentage of sale price, the average stamp duty revenue per transaction fell commensurately. But, in addition to that, the volume of transactions in the market also dropped off a cliff, and of course the stamp duty revenue from a transaction that doesn't happen is zero. The combination of these two factors led to a 60% fall in stamp duty revenues in the first year of the crisis. This was much, much larger than the fall in income tax revenue, which was 7.4%.

This isn't just a property versus income thing; because stamp duty is a transaction tax, it's hugely volatile to market slumps which involve fewer transactions happening. (So is CGT.) If, instead of stamp duties, we'd had an annual property tax, like a grown-up country, the fall would have been nothing like 60% (though it would still have been more than 7.4%).

The point of all this is that a country should prefer a diverse tax base. The narrower your tax base, the more volatile your revenue stream will be, and in particular the more vulnerable to economic shocks of one kind or another.
 
Sister Sara said:
So in order to widen the income tax base to capture some of those 1 in 4 (or 4 in 10?) who earn income but dont pay income tax.

One way would be to increase the National Minimum Wage, inducing wages increases up the income scale.
Another way would be to reduce tax bands or cut income tax credits.

I can't think of any other way. Are there other ways?
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Increasing VAT would do it. If you don't tax the money when it is earned, then tax it when it is spent.

(And in fact low earners do pay a larger share of their income in VAT and expenditure tax than high earners do. So this already partly offsets the advantage they get of paying no income tax. If you want them to contribute a larger share of overall tax revenue than they currently do, increasing VAT would be one way of acheiving that.)
 
TomEdison said:
Increasing VAT would do it. If you don't tax the money when it is earned, then tax it when it is spent
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While it would broaden the tax base it wouldn't necessarily diversify the tax base.

VAT, a tax on transactions, is going to be heavily correlated with economic activity - much like income (growth).

Of course having your eggs in 2 (similar) baskets is better than one but, much like the personal advice you would get on here, the Government should aim for a diversified (into a less correlated) pool of income streams. But that's easier said than done.

Which brings us back to wealth rather than transactional based taxes and:

fistophobia said:
The solution is .. higher LPT.
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TomEdison said:
The narrower your tax base, the more volatile your revenue stream will be, and in particular the more vulnerable to economic shocks of one kind or another.
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Equally, the more public spending you indulge in, the more volatile your revenue stream will be, and in particular the more vulnerable to economic shocks of one kind or another.

So governments should spend less.
 
T McGibney said:
Equally, the more public spending you indulge in, the more volatile your revenue stream will be, and in particular the more vulnerable to economic shocks of one kind or another.
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JM Keynes would disagree. The use of public spending to smooth the impact of external economic shocks (which would include smoothing their impact on revenue streams) is a core Keynsian tool of economic and fiscal management.
 
skrooge said:
While it would broaden the tax base it wouldn't necessarily diversify the tax base.

VAT, a tax on transactions, is going to be heavily correlated with economic activity - much like income (growth).
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To be clear, I don't think Ireland should increase its VAT rates. They are high enough already.

But, if your object was to collect more revenue from the sector of the population that has earnings but pays no income tax, increases in VAT (or other expenditure taxes) would be an effective way to acheive that objective. This group does pay VAT.

If you wanted to, you could balance VAT increases with reductions in income tax. If you get it right, total tax revenue could be unchanged, but a greater proportion of it than before would come from taxpayer units that paid no income tax, and a smaller proportion from taxpayer units that did pay income tax.
skrooge said:
Of course having your eggs in 2 (similar) baskets is better than one but, much like the personal advice you would get on here, the Government should aim for a diversified (into a less correlated) pool of income streams. But that's easier said than done.
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Well, I don't think the parallel is coincidental. It's generally true that diversified systems are more resilient, and more stable, than concentrated systems. So the optimal tax system will have a blend of taxes on earnings and taxes on wealth; a blend of annual levies and transaction taxes; a blend of taxes on income and taxes on expenditure.
 
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T McGibney said:
Keynes? Bless.

The poor man is long discredited.
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Only in the view of people who, themselves, are somewhat on the margins of economic thinking. Its not the 1980s any more. Keynesian ideas are pretty firmly embedded in current mainstream macroeconomic thinking.

But, for our purpose, it doesn't really matter. Even those who most strongly rejected Keynesian economics in the 1980s didn't dispute that public spending would smooth the impact of external economic shocks. They just denied that it was a good idea — they thought it was preferable to do this through monetary policy.

(Current macronecomic thinking favours a blend of both. Which brings us neatly back to the idea that diverse systems provide superior resilience and stability.)
 
The problem with Keynesianism is Reagan's dictum: "there's nothing as permanent as a temporary government program."

As long as Irish governments remain addicted to spending, periodic public finances crises and tax shortfalls will remain a fact of life..
 
But we're getting distracted from the point of the thread which, remember, is that nearly one in four or, depending on which IT staffer you believe, nearly four in ten earners pays no income tax. A reduction in expenditure won't change this at all; they'd still be paying no income tax.

If you want to collect more revenue from this group you have to (a) raise income tax for this group, or (b) raise other taxes that this group already pays, or (c) both. There's no effective method of addressing this issue that doesn't involve tax increases.
 
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