Our unjust income tax system and the next budget

[Purple]

It’s strange that so many people call for a more just income tax system and yet they are really seeking to make it more unjust.
I can't see the imbalance in the income tax system being changed in this year’s budget. If anything it will be exacerbated.


The fact is that we have the lowest rate of income tax for low to middle earners in the OECD and one of the highest rates of marginal income tax. The top rate of tax is reached at a much lower level than most EU countries. Our income tax system is unfair; those on high incomes are forced to shoulder a disproportionately high proportion of the burden while almost 50% of the workforce pay no income tax.

Most of the print media and RTE, the Public Sector Broadcaster and TV3's very own town crier Vincent Browne, will continue to misrepresent the facts and present a biased view of the facts in order to advance their left-wing agenda. Mean time Multi-Nationals and indigenous companies will continue to struggle to attract top level talent. If we are serious about getting growth back into the economy we have to start telling the truth about our income tax system.

 

[Protocol]

Just a quick side point:

in all income tax systems there are (many) people who won't pay any tax as their incomes are too low, e.g. students, part-time workers, etc.

So you will never have a system where ALL earners pay some tax.

But, yes, MORE earners should be paying tax.

 

[Purple]

Just a quick side point:

in all income tax systems there are (many) people who won't pay any tax as their incomes are too low, e.g. students, part-time workers, etc.

So you will never have a system where ALL earners pay some tax.

But, yes, MORE earners should be paying tax.

I agree that some people will not pay income tax (and should not pay income tax) but the national debate is built on the false premise that lower and middle income earners are being hit hardest and that high earners are somehow not paying their fair share. This, by international and historical standards and comparisons, is factually untrue.

 

[Yachtie]

I think that it all depends. Last night, George Lee reported that almost 2/3 of tax take are spent on one form of social welfare or another, including child benefit. To me, that's madness.

In my opinion, it would be a lot more productive, albeit not 100% fair to stop payments such as child benefit, single parent allowance, family income supplements and whatever else altogether and award those who qualify for them with increased tax credits. In the mean time, invest all that 'withheld' money into domestic economy and jobs creation. If successful, the scheme would nearly neutralise itself by increasing the tax take by creating more jobs and still allowing those in employment to benefit from those allowances. Also, they are talking about linking the Revenue and DSP computer systems in the near future. As an employer, all I ask for is for quick and easy way of employing people on demand on temporary basis and slotting them back into SW system when and if the work dries up. I've lost count of how many times I have offered a few weeks or a few month's worth of work to unemployed people and they turned me down because they don't want to have to go through another 6-8 weeks waiting to get their job seeker's again. By making this easier, I am convinced that a substantial amount of 'grey' economy would be eliminated straight away too.

I agree that everyone should pay some tax but USC seems to have taken care of that. In reality, if somebody earns €200 per week, you can't take €50 away from them as they'd get more in SW than they can earn.

 

[orka]

I posted a reply in another thread linking to an Irish Times article on this subject and cautioning against further increases in our top marginal rate: http://www.irishtimes.com/newspaper/opinion/2012/1120/1224326838841.html

High-level summary:

· Ireland already has the most progressive income tax system in the EU
· Ireland is joint 10th in the OECD for marginal income tax rates
· There is a strange imbalance in our income tax system: we have one of the lowest tax rates for an average earner but one of the highest marginal tax rates
· Many countries are reducing their corporate tax rate making our low corporate tax rate not quite the standout it once was – so investors are now also looking at marginal income tax rates for senior executives which may be a disincentive to invest here.
· The top rate is reached at a much lower level in Ireland than in competitor countries: high earners in the UK can earn £150K (€187K) before entering the top rate of income tax, €250K in Germany and €175K in Spain.
· The UK reversed their 2010 increased top rate of 50% - back down to 45%. The UK tax authorities reviewed the impact of the increase and found that the higher rate was “a highly distortionary form of taxation” which elicited “a considerable behavioural response” among tax payers. Revenue from the higher rate was much lower than anticipated and may actually have had a negative effect on tax revenues.
· Income tax take in 2012 is expected to be 15.3B from 1.8M people at work vs. 13.5B in 2007 when there were 2.1M people at work.

The Economist Intelligence Unit has already issued a strong cautionary message for Ireland on this very issue. Its 2012 report, Investing in Ireland – A Survey of Foreign Direct Investors, praises our pool of domestic and foreign workers, but says income taxes could be discouraging senior talent. Investors are concerned about what they see as imbalances in our personal tax system; a large gap between the average all-in tax rate paid by the typical worker, which is among the lowest in the OECD, and the marginal tax rate for top earners, which is among the highest. They believe that these high marginal rates will make it less attractive for senior executives to settle here.

The Department of Finance, in its own published review of the USC in November 2011, said that the abolition of the PRSI ceiling, together with the introduction of the USC, brought about a more progressive and equitable combination of charges. The tax reforms of recent years mean that Ireland now has the most progressive tax system in the European Union.

It particularly annoys me that the 'justification' advanced for increasing the USC by 3% is to bring it into line with the rates for self-employed people - that assumes as a given that a 55% marginal rate for anyone is okay and seeing as the self-employed have sucked it up for a year it's probably safe to whack it onto PAYE people now. Self-employed people also don't have an employer's contribution made on their behalf. For a PAYE worker earning over 100K, the marginal extra tax take is a total of 62.75% (52% from the employee and 10.75% from the employer) - increasing this by 3% would increase the marginal total extra tax to a monstrous 65.75%. That is too much in what is already THE most progressive tax system in the EU.

 

[DerKaiser]

Most of the print media and RTE, the Public Sector Broadcaster and TV3's very own town crier Vincent Browne, will continue to misrepresent the facts and present a biased view of the facts in order to advance their left-wing agenda.

The most bizarre aspect of the last few years for me is the perceived need to demonise sections of society in order to justify extracting more money from them.

Why not just acknowledge that high earners have borne the brunt of the government's efforts to plug the hole in its falling revenues?

Why not just acknowledge that public sector workers have suffered a significant drop in take home pay and have had their workload increased?

These are both facts, but different interest groups treat us like imbeciles by commissioning ridiculous reports where facts are used creatively to undermine the contribution of certain 'target' groups.

Maybe its time to treat people like adults, acknowledge the sacrifices made to date and explain who is now being asked to pay more and give the rationale.

At the end of the day the choices are going to be based on who can afford to contribute more and what is likely to be least harmful to future recovery and not on subjective assessments of who should contribute more.

 

[DB74]

It particularly annoys me that the 'justification' advanced for increasing the USC by 3% is to bring it into line with the rates for self-employed people - that assumes as a given that a 55% marginal rate for anyone is okay and seeing as the self-employed have sucked it up for a year it's probably safe to whack it onto PAYE people now. Self-employed people also don't have an employer's contribution made on their behalf. For a PAYE worker earning over 100K, the marginal extra tax take is a total of 62.75% (52% from the employee and 10.75% from the employer) - increasing this by 3% would increase the marginal total extra tax to a monstrous 65.75%. That is too much in what is already THE most progressive tax system in the EU.

While I see where you are coming from to some extent, it's a bit of a stretch to call the Employer's PRSI contribution a tax on the employee.

 

[orka]

While I see where you are coming from to some extent, it's a bit of a stretch to call the Employer's PRSI contribution a tax on the employee.

It's not a direct tax on the employee but it is a tax on employment and it does affect the employee indirectly: if an employer has a budget of say €100 to pay salary, the €100 will be down to €90.29 (to allow for the 10.75% employers PRSI) before the employee sees it and then the employee is taxed, leaving them with €43.34 at current marginal rates - so of the original €100 that the employer had available to send in the employee's direction, the employee sees a lot less than half.

 

[Purple]

Excellent points DerKaiser.

 

[DB74]

It's not a direct tax on the employee but it is a tax on employment and it does affect the employee indirectly: if an employer has a budget of say €100 to pay salary, the €100 will be down to €90.29 (to allow for the 10.75% employers PRSI) before the employee sees it and then the employee is taxed, leaving them with €43.34 at current marginal rates - so of the original €100 that the employer had available to send in the employee's direction, the employee sees a lot less than half.

Yeah I did say I knew where you were coming from with this but I still disagree, although I can see your point. By that logic, if Employer's PRSI was abolished in the upcoming budget, every employer would give their employees a pay rise equivalent to the savings of the Employers PRSI, and that is never going to happen in a million years.

 

[Godfather]

It's easier to tax higher earners than lower. Lower income earners inject more easily their cash into their economy for the basic needs while higher might just invest part of their income more into property or savings that do not make the economy turn around...

About the rate to be applied to different earners that's depending on so many variables. Certainly the government has got pressure in repaying the Troika+income tax is "more visible" than many other taxes as regards predictions hence why the disappointment arond...

Simplistic? Maybe... But I still thank J. M. Keynes...

 

[Purple]

It's easier to tax higher earners than lower. Lower income earners inject more easily their cash into their economy for the basic needs while higher might just invest part of their income more into property or savings that do not make the economy turn around...

That's a spurious argument frequently held up by the Left in this country.

 

[Godfather]

That's a spurious argument frequently held up by the Left in this country.

Sorry I don't understand what you mean by "spurious" which is synonym with "false".

Example: someone earning 1000 Eur/month is likely to spend most of the earning on goods of primary necessity like food, clothing, etc.

Someone earning 3000 Eur/month can more likely save part of their income.

Any example that contradicts this pls?

 

[shnaek]

The end result will be that we won't attract people with capacity to earn high incomes here, and we will lose more high earners to countries that actively seek them. Just like we attract the large US multinationals here, so too will other countries attract high earning individuals.

 

[cork]

What is the effective rate of Coperation tax?
What is the effective tax rate paid by the "RTE Stars"?

When govt talk about broadening the tax base - they mean hitting the same people over & over.

The Left ingore waste in the public sector.

Local Government was "reformed" by merging councils in Galway and Waterford.

What about 4 regional authorities?

What about value for tax monies?

 

[Godfather]

The end result will be that we won't attract people with capacity to earn high incomes here, and we will lose more high earners to countries that actively seek them. Just like we attract the large US multinationals here, so too will other countries attract high earning individuals.

Ah ok! But unfortunately the government here needs to get rid of the payments to the Troika asap somehow...

 

[Purple]

Sorry I don't understand what you mean by "spurious" which is synonym with "false".

Example: someone earning 1000 Eur/month is likely to spend most of the earning on goods of primary necessity like food, clothing, etc.

Someone earning 3000 Eur/month can more likely save part of their income.

Any example that contradicts this pls?

The money saved by the high earner is loaned out by the bank and becomes capital for businesses.
The high earner spends their income in shops and restaurants thereby providing income and wages for local businesses as well as saving and spending on luxury goods that are inported (but subject to VAT). It's a far more attractive distribution than the low earner spending their income in a German owned supermarket on low VAT rate items.

 

[Firefly]

The top rate of tax is reached at a much lower level than most EU countries.

Thus the term "high earner" is a misnomer...anyone with a decent job is paying income at the top rate of tax. Therefore increasing the top rate of tax is a hit on the middle incomes as well as those on truely high incomes.

I would be against a third rate of tax (say on incomes >100k as has been muted) in the medium term as it will essentially:

Drive high earners out of the country
Prevent higher earners /entrepreneurs coming here
Miss the true target - you would get some money from those earning say 100-150k, but after this, tax accountants will just get more work

However, it would also have the much desired effect of ending the debate from the loonies about whether the rich pay enough tax.

 

[Latrade]

Sorry I don't understand what you mean by "spurious" which is synonym with "false".

Example: someone earning 1000 Eur/month is likely to spend most of the earning on goods of primary necessity like food, clothing, etc.

Someone earning 3000 Eur/month can more likely save part of their income.

Any example that contradicts this pls?

Well I can give one example for starters: me.

Mortgage roughly €1000, Car roughly €450, childcare €850, food and shopping €480, utilities €180.

Now that doesn't include fuel for car or other misc expenses that come with a house and/or a family. And yes there are two of us, but still, even being a pretty frugal couple, most of our money goes back into the economy and not into investments or savings.

 

[Chris]

It's not a direct tax on the employee but it is a tax on employment and it does affect the employee indirectly: if an employer has a budget of say €100 to pay salary, the €100 will be down to €90.29 (to allow for the 10.75% employers PRSI) before the employee sees it and then the employee is taxed, leaving them with €43.34 at current marginal rates - so of the original €100 that the employer had available to send in the employee's direction, the employee sees a lot less than half.

You are absolutely right. What also has to be factored in is that an employer offering an employee €90,000 pre-income tax and other deduction has to get at least €100,000 of productivity out of that employee just to break even. If the employer doesn't think that is possible or likely they will not create that job thereby reducing overall employment.

Yeah I did say I knew where you were coming from with this but I still disagree, although I can see your point. By that logic, if Employer's PRSI was abolished in the upcoming budget, every employer would give their employees a pay rise equivalent to the savings of the Employers PRSI, and that is never going to happen in a million years.

Some of the money will go to the employee or to creating extra jobs, or to offering a product at a lower price or to investing in other areas of the business. All of which is positive for the economy.

It's easier to tax higher earners than lower. Lower income earners inject more easily their cash into their economy for the basic needs while higher might just invest part of their income more into property or savings that do not make the economy turn around...

About the rate to be applied to different earners that's depending on so many variables. Certainly the government has got pressure in repaying the Troika+income tax is "more visible" than many other taxes as regards predictions hence why the disappointment arond...

Simplistic? Maybe... But I still thank J. M. Keynes...

Simplistic? No. Nonsense? Yes.

What this completely ignores is what is actually done with money that is not spent. If it goes into savings then it is loaned out to businesses or consumers who spend it in some way. All that saving is, is letting someone else do the spending.
Or the money is invested in capital goods, meaning that there is capital formation or investment in business activity which results in jobs.
Wealth and prosperity does not come from spending, it comes from producing. And before you can produce you need investment in capital goods. That is why Keynesian ideas have never ever worked, and are failing so spectacularly at present.