The Case For Flat Tax In Ireland

murphaph wrote: »

I love the idea of flat taxes. I think that most states avoid them because they are far too transparent. The government can't easily play a smoke and mirrors game of decreasing income tax while increasing USC or whatever. They love this opaqueness come budget time.

In theory you save a heap of money on the administration of the tax system too as the complicated structures are simply not there.

One thing I'm not sure of...how would you handle someone getting a relief for being blind or having a disabled child? Could the flat tax handle this case equitably? (I think 2 families on exactly the same income where one family has the financial burden of a severely disabled child has to be taken into consideration by the tax system. It can't be simply a case of saying "tough luck" to them.....perhaps the flat tax could be amended to subtract a percentage point from the rate payable for a given "relief")

andrew wrote: »

Is it definitely more progressive? A person on €100,000 at the moment pays about €40,000 in tax, as opposed to €28,000 here. A person earning €50,000 pays €15,000, but €8,000 here. And if almost everyone is paying less tax, then it just seems weird that we'd end up saving money. Where exactly is the saving coming from?

Also, and relatedly, if you scrap the dept. of Social Welfare (save for a few things), I think it's worth being more explicit about what things aren't covered under your scheme. Is anyone at all made worse off? By how much?

djpbarry wrote: »

The problem with that is you’ll have someone earning €19,999 per annum tax –free, but someone earning €20,000 per annum taking home only €16,000.

FGR wrote: »

Maybe I'm blind here but in the list of all current allowances provided to those on welfare - what about the rent supplement?

Again maybe I missed it but I hope the supplement was omitted from the current expenditure of the relevant departments as otherwise its redistribution, without consideration, would distort the numbers heavily. Or is it simply proposed that it stay?

Peregrinus wrote: »

Maybe I'm nto following the details in your OP, but are you costing the "universal" basic income on the assumption that it only has to be provided to the (563k + 211k = approx) 775k people in receipt of social welfare incomes?

If so, there may be a gap. There are a good number of people who don't qualify for any social welfare benefit in their own right, because the are dependants of other social welfare claimants, and those other claimants receive an increment in respect of them.

And then you have other non-earners who don't qualify either as social welfare claimants or dependants - e.g. students.

If you are really providing a universal basic income to all adults who don't earn at least the amount of the basic income, the likely number of recipients is going to be considerably more than 775k, but I have no idea how many more. Still, you'll have to find that out and cost it. If you're only providing it to current welfare recipients then (a) it's not universal and (b) you're not really abolishing the Dept of Social Protection; just moving claimants on to a uniform rate regardless of their circumstances. But you'll still have all the overheads, etc, associated with identifying who is entitled and who is not.

The other point, of course, is that if you are saving $8bn or so of welfare payments and catering to more or less the same number of people, it seems inevitable that many people will be worse off. You need to identify who those people are and consider why the are getting the level of benefits they currently do, and whether their circumstances make it realistic to expect them to maintain themselves and their dependents on the income that your scheme would provide them.

Greyian wrote: »

Do your changes take account of the fact that the social welfare cost (or whatever you want to put it under) will rise (compared to your first post) with the introduction of a negative income tax?

You say that €12,000*775,000 people will give us a bill of €9.3 billion. Does child benefit come under the DSP? You haven't mentioned it in your figures, so are you intending on scrapping it?

Next, we have to account for the cost of the negative income tax. These are the figures for salary bands from your OP.

0 to 9,000|368,585
9,001 to 12,000|107,297
12,001 to 15,000|116,836
15,001 to 20,000|213,112
20,001 to 25,000|216,626
25,001 to 30,000|201,085

If we assume everyone is at the very top of their band, that gives us 368,585 people earning €9,000/year. Each one will be entitled to €8,400/year. So the negative tax rate on <=€9,000 earners will cost us €3,096,114,000/year, so let's say €3.1 billion.
For people earning 9001->12000, it'll cost us €770 million per year.
For people earning 12001->15000, it'll cost us €700 million per year.
For people earning 15000->20000, it'll cost us €850 million per year.
For people earning 20001->25000, it'll cost us €430 million per year.
So that's a total added cost of €5.85 billion. That's if we assume all those people are earning the top of their respective salary bands. If they are in the middle (i.e. the average 20,001->25,000 earner is earning €22,500), then the cost of the negative income tax is €7.28 billion.

So we're now looking at a cost of €15.1-€16.58 billion, without accounting for child benefit. According to Wiki, there are just under 1 million 0-14 year olds in Ireland, so let's say 1.1 million children are eligible for child benefit. That adds another €1.78 billion to the figure, meaning we're now at €16.9-€18.35 billion. Add in the €2.42 billion you mentioned for existing programs (Disability allowance, Carer's allowance, back to education etc), and now we're at €19.32-€20.77 billion. Seeing as the €19.32 billion is the lowest end of the spectrum, based on everyone earning the very top of the bands, the real figure is probably closer to the €20.77 billion, meaning our social welfare budget would, in effect, be practically unchanged from the €20.42 billion in 2013.

So, it would seem that the suggested changes to a negligible amount to nothing to reduce our expenses. So what about our tax receipts?

Using the same source for earning levels from your OP, we would have a total of 1,111,766 people (those earning €30,001 or more per year) eligible for the flat tax of 40%.

So, what would our tax receipts be?
If we assume everyone is in the middle of their salary band (and €200,000+ has an average of €300,000/person per year), our tax receipts would be €15.615 billion.
If we assume everyone is at the very top of their band (which, I think we can all agree, is very unlikely), we'd have income tax receipts of €20.4 billion/year. This assumes that the €200000+ people are earning an average of €500,000.

I'd be of the opinion that the first figure is more likely (do we really think everyone is earning at the top of their band?). So your suggested changes would seem to lead to an overall fall in income tax receipts, with little to no change in social welfare related charges (I'm putting the negative tax under SW, but you could take it away from their and then reduce the income tax by the same figure if you wanted to do it that way).

I'm also curious where you go the gross taxable income of €131.7 billion from. To get that figure, I have to take everyone under 200000 as earning the maximum in their bands (the 0->9000, 9001->12000 etc), with the average 200,001+ figure being €1.5 million. That would give an overall average wage of over €65,000, which seems vastly out of kilter with every other average wage figure I've ever seen in Ireland.