The tax base - what to do?

FrankGrimes

This article by Pat Leahy (Political Editor) was printed in the Sunday Business Post last week and I found it very interesting and I'm surprised not to have seen any discussion of it on here or on the Politics board.

I have heard many suggestions that we should increase the tax rates on high earners and there is clearly a perception out there that high earners are getting away with paying no or very little tax. I do recall that about 2 years ago a short list of high earners who paid no tax was printed and I believe this has led to a belief that this is commonplace.

The linked article goes a long way towards dispelling this as a myth but I'd like to see what people on here think - are the figures correct and what would seem to be a good way to approach or tax base in the current climate? Interested to look at economics of it as opposed to the politics of it for the moment - though I'm sure getting clarity on the current profile of the tax base will help inform some of the discussions over on the Politics forum.

The article implies that we collect €13billion in income tax and that tax is collected from 2.4million taxpayers. 50% of the income tax (€6.5billion) comes from the top 6.5% of taxpayers. That means the top 156,000 taxpayers pay the same amount as the other 2,244,000 earners combined.

30% of all income tax (€3.9billion) is paid by the top 2.5% of taxpayers - i.e. 60,000 pay €3.9billion.

38% of all income earners are under the tax threshold and pay no income tax at all (though they probably now pay the 1% tax levy, right?).

So, once we can confirm that these figures are correct, it raises some interesting questions.

1. As the article asks - are we already too dependent on high earners for our income tax and is there therefore less scope to increase the income tax for that category (due to disproportionate impact on our income if a portion of those earners leave the country or lose their jobs)?

2.What would the rough estimate be for very high earners that are managing to stay outside of the tax base altogether?

3. Is it just a few individuals each avoiding individually high tax payments that don't amount to a substantial enough total to distort the bigger picture or unduly affect policy decisions (i.e. in my opinion saying 'these people pay no tax, we need to increase tax on high earners' seems to go against the facts whereby high earners clearly already contribute 50% of total income tax)?

4. Do we need to broaden the tax base and, if so, what approaches to doing this are generally recommended and/or have worked or failed elsewhere?

5. For me, just raising the tax on the high earners seems far too blunt an instrument and would only increase our risky dependence on the success of that sector. I fully support the model whereby high earners pay more than lower earners, but I'm not sure that at a time like this 38% of our earners should remain outside the income tax brackets. Broadening the tax bands would seem to be quite logical though it would result in some low earners that don't pay tax today having to pay it tomorrow. Politically, that would seem to have a lot of risk attached, but from the economics perpsective is it generally regarded as the right thing to do?

6. In addition to broadening the tax base, what rate increases would be regarded as most effective, assuming that the consensus is that corporation tax should not be increased?

Sorry if I'm not articulating this well, but hopefully you can see the fact-based discussion I'm trying to generate as opposed to the emotive arguments (e.g. 'the bankers are getting away with murder so that means we should ignore the gaping deficit in our finances and just tax the rich some more and that will solve everything').

Godge

As well as the high dependency on high earners, we are also in danger of getting into relatively high marginal tax rates. Take a public servant earning 70,000. 41% tax rate, 6.5% superannuation contribution (3.85% net), 10% pension levy (5.9% net), 1% income levy, giving a total of nearly 52%, over 100,000 that rises by another 1%. While some of that is paying for a pension, it still means that for every extra euro earned only 48 cent is taken home.

Those figures add to the argument that the room for further income tax or income levy increases is limited.

If we want to broaden the base, he type of measures we should be considering are:

Decreasing the tax credits to bring more people into the tax net.
Standardising all tax credits (including all existing property reliefs)
Abolishing mortgage interest relief for investors (could be dressed up as helping first-time buyers)
Taxing child benefit
Increasing excise duty on petrol (a carbon tax but not enough to make everyone drive north)
A property tax, not confined to residential property but also covering farms, commercial property and other land.


On the expnediture side, it is hard to see how much more can be taken out of pay rates. In dealing with numbers, you would have to pay redundancy/early retirement which means a cost in the current year and any saving would be a year away. Doesn't leave much room apart from looking at transfers. Social Welfare rates should be frozen but rent allowance could be reduced in the current market while agricultural subsidies will need a close examination. At best you could squeeze 2 to 3 billion out of those expenditure measures meaning you need to raise taxes as shown above.

All of these present hard choices for next October unless things get really bad and we have to have a budget in the summer, possibly to bring in a limited property tax payable in the late autumn.

Oh, and I bet we will see a return of third-level fees.

I don't think the vast majority of people realise how bad things are.

Godge

Godge wrote: »

Standardising all tax credits (including all existing property reliefs)

Of course, I mean standard-rating

Delta Kilo

50% of the income tax (€6.5billion) comes from the top 6.5% of taxpayers. That means the top 156,000 taxpayers pay the same amount as the other 2,244,000 earners combined.

This is because 40% of 200,000 is 80,000 whereas 40% of 50,000 is 20,000. Although the same rate of tax is used, the high earner pays more because of the money s/he earns so that is why they actually contribute more in tax, not because of the governments taxation policy or anything. It is just because of their high income that they pay more in Euro, it is the same proportion of their wage as the man on 50,000.

In my opinion, a third tax-band should be introduced for anybody earning over 80,000 pa. Say 50% so everything they earn over 80,000 is taxed at 50%. Why anyone, especially in these times needs that amount of money I just do not know so it should be put back into the country to try and get back on our feet again.

However, this could raise a lot of issues:

The high-earner, with the aid of modern technology, could move out of Ireland and not pay any tax at all and work from "home". This should not be allowed. I think you have to be gone from the country for more than 180 days pa for this to be the case. This should be abolished. You're either in or your out as far as I'm concerned.

Secondly, it could lose to a further lack of competitiveness because the high earners would be unwilling to work more often, do overtime and overall become less productive because they don't feel the need to work hard or work extra because what they earn is just going to be taken away from them again in tax. They would sacrifice work for extra leisure time etc.

I think the social welfare scheme, especially as regards non-nationals claiming our social welfare needs to be changed. Not to be racist or anything but there is something seriously wrong when it is legal to fly in from eastern Europe, get a taxi to the social welfare office and fly home again within a couple of hours!

K-9

FrankGrimes wrote: »

38% of all income earners are under the tax threshold and pay no income tax at all (though they probably now pay the 1% tax levy, right?).

No, there is no levy on the minimum wage. The Govt. backed down on that one, I don't think they should have.

K-9

Delta Kilo wrote: »

This is because 40% of 200,000 is 80,000 whereas 40% of 50,000 is 20,000. Although the same rate of tax is used, the high earner pays more because of the money s/he earns so that is why they actually contribute more in tax, not because of the governments taxation policy or anything. It is just because of their high income that they pay more in Euro, it is the same proportion of their wage as the man on 50,000.

In my opinion, a third tax-band should be introduced for anybody earning over 80,000 pa. Say 50% so everything they earn over 80,000 is taxed at 50%. Why anyone, especially in these times needs that amount of money I just do not know so it should be put back into the country to try and get back on our feet again.

33% of the workforce pay the top rate, which I'm ok with.

The tax burden needs to be spread evenly and fairly. Minimum wage should be taxed, even if it's only a 10 % rate on say €5,000 of income.

Increase the standard rate to 25%.

Increase the higher rate to 44% which keeps the fairness element.

Increase National Insurance in line with international rates. 10% minimum.

Instead of reducing PRSI to 2% after €53/54,000, keep it at the new 10% rate. Anybody who earns over €1,000 a week can afford it.


VAT can be reduced to 20 or 19%.

Our tax take is to dependent on indirect taxation.

xOxSinéadxOx

I know this is a bit off topic, but I've always wondered that about a progressive tax system. Seeing as the taxpayer pays a percentage of their income the high earner is obviously going to be paying more tax so why is there a higher rate? surely it's already fair

FrankGrimes

Some interesting points raised there for sure...

Have to say I don't agree with anybody not paying any income tax at all - at a time like this I think even those on low wages should be paying the 1% levy. If deflation runs at 1 or 2% this year, extending the tax levy to include some/all of the 38% of earners currently outside of tax bracket would seem to be very reasonable without causing massive impact to those earners in real terms.

Separate from opinions on whether it's fair or not for high earners to pay high amounts of tax (proportionate to income as it is), it does seem that relying on 60,000 people to bring in 30% of the income tax is a very high risk position to be in. If 15,000 of those individuals lose their jobs or move abroad, which is not inconceivable, that's additional €1billion that needs to be made up from somewhere else (and immediately offsets much of the income to be gained from the pensions levy for example).

I agree with the point that loopholes around tax exile status should be closed with tighter rules that make it prohibitive to try and setup as a tax exile while really doing most of your business in Ireland. That said, if we define say €250million (which is still quite low relative to the ~€37billion total Exchequer income) as the level of materiality that represent the real big ticket policy changes, I'm not sure there's evidence to suggest there is a material level of additional tax to be gained by focusing on this area. Until we have evidence confirming otherwise, I think this should be regarded as a side issue.

K-9

FrankGrimes wrote: »

Some interesting points raised there for sure...

Have to say I don't agree with anybody not paying any income tax at all - at a time like this I think even those on low wages should be paying the 1% levy. If deflation runs at 1 or 2% this year, extending the tax levy to include some/all of the 38% of earners currently outside of tax bracket would seem to be very reasonable without causing massive impact to those earners in real terms.

Separate from opinions on whether it's fair or not for high earners to pay high amounts of tax (proportionate to income as it is), it does seem that relying on 60,000 people to bring in 30% of the income tax is a very high risk position to be in. If 15,000 of those individuals lose their jobs or move abroad, which is not inconceivable, that's additional €1billion that needs to be made up from somewhere else (and immediately offsets much of the income to be gained from the pensions levy for example).

I agree with the point that loopholes around tax exile status should be closed with tighter rules that make it prohibitive to try and setup as a tax exile while really doing most of your business in Ireland. That said, if we define say €250million (which is still quite low relative to the ~€37billion total Exchequer income) as the level of materiality that represent the real big ticket policy changes, I'm not sure there's evidence to suggest there is a material level of additional tax to be gained by focusing on this area. Until we have evidence confirming otherwise, I think this should be regarded as a side issue.

Indeed, there will be less earners over €100,000 this year obviously.

So by increasing tax rates you'll be lucky to gain the same tax revenues from that income group as they reduce in numbers.

So, were do we get extra tax Revenues and cuts in Spending in billions?

Keith186

Pretty interesting read there.

I reckon the minimum wage workers should pay a 1% levy as it's such a minimal amount to them but will make a difference to recovering the economy. I'd agree with this as long as the minimum wage is not reduced. Reducing the minimum wage could possibly have an effect on helping business stimulate the economy but I feel this would put more people in poverty and the gap in between rich & poor is already pretty bad the way it stands.

I'm presuming here & could be wrong but in general a lot of the lower class & lower paid smoke cigarettes. I recently read that taxes on tobacco will be down by €324m this year. The budget tax increase whilst good in nature by trying to prevent tobacco use has in reality opened up a larger black market which is not regulated and reduces Government income, a €1 reduction would have a good effect on reducing the black market (and decrease expenditure by €10/15 euro per week in some cases for smokers which would be a 'give back' in lieu of levy for lower paid smokers) and possibly increasing revenue compared to the likely output. It may seem like a step backwards but every penny counts and in theory less < 18 years olds will be able to purchase tobacco which is good in the long term.

Tax breaks should also be cut or abolished. If you think about it, they favorably benefit the wealthy as they have more to save. A low paid worker avoids the 1% levy and saves approx. €160 a year. A high paid worker with a second home saves thousands while the likes of Bono is rumored to pay €0.00 tax. This is a fundamental flaw in my eyes. Same as AVC's, if you are paid enough where your expenditure is considerably less than your income you get another tax break by using AVC's which at the end of the day is an expense to the Government in lost revenues.

I like the idea on reducing rent allowances as rents have dropped, while some people are tied into a lease they're generally not worth the paper they're written on and can leave for a cheaper alternative of similar accommodation.

And as another poster said the social welfare payment system (job seekers allowance) is being taken advantage of. It may seem awkward to legislate around due to EU rules but with such a recession tough action is needed. A daily sign on (maybe at an early enough hour too) in a local post office (or other local centre) on weekdays could be an idea and they could take holidays in the same fashion as PAYE employees, 20/22 days of not signing daily per year. It would be very controversial but could force the lazy to actually try and work and cut down on people taking unfair advantage of the system as they do now. Obviously people would be disgruntled so more lee-way could be given to people who paid more tax in the past compared to people who never worked a day in their lives. In the long term the job seekers allowance could change as getting up early to sign on might as well mean you get up to go to work cos it'll be worth the difference.

Another worthwhile measure to generate revenue would be reducing VAT, even though you'd likely be paying more than our northerly neighbours, a 3% cut in VAT might entice some loyal citizens to shop at home. In fairness unemployment is rising, pay is decreasing in some cases and VAT is going up, you couldn't blame anyone for seeking a better deal when the one they have at home is getting worse due to VAT.

funky.monkey

As a worker on a fairly low wage (less than 13 an hour) I would much prefer to pay a higher Income tax (even if it was a lot higher), than see any property tax come in.
Thats cos I think a property tax is unfair in that it hits the lower paid single income families while it would be much easier for homes where there are 2 or more people working earning more. For example you could have 2 houses in the same street - one a single income family bringing in 25,000 a year, and next door a couple each earning 50,000 and yet under a property tax both homes have to come up with 1000 a year (which I think is the figure they are talking about).
For the double income couple its not that much hardship to find 1000, but for the family on only 25,000 a year it would cause real financial hardship.
So - please consider the lower paid when thinking of a property tax, as we want to make our contribution, but according to our incomes.

FrankGrimes

funky.monkey wrote: »

As a worker on a fairly low wage (less than 13 an hour) I would much prefer to pay a higher Income tax (even if it was a lot higher), than see any property tax come in.
Thats cos I think a property tax is unfair in that it hits the lower paid single income families while it would be much easier for homes where there are 2 or more people working earning more. For example you could have 2 houses in the same street - one a single income family bringing in 25,000 a year, and next door a couple each earning 50,000 and yet under a property tax both homes have to come up with 1000 a year (which I think is the figure they are talking about).
For the double income couple its not that much hardship to find 1000, but for the family on only 25,000 a year it would cause real financial hardship.
So - please consider the lower paid when thinking of a property tax, as we want to make our contribution, but according to our incomes.

I appreciate your thinking here but the other view on property tax is that if someone can afford to own and run a house, they are more likely to be in a position to pay a property tax than someone on low income (with potentially a large family).

Given that the average house price in Dublin until recently was over €300,000, in your example above the low paid home owner has presumably a mortgage of 15 times their annual income of €25,000. There is a pretty strong argument to say that that person cannot really afford that mortgage (and probably never could) and that our national policy on taxation should not be based on catering for people that took out mortgages 15 times their income (which would be generally regarded as reckless borrowing).

P. Breathnach

FrankGrimes wrote: »

...The article implies that we collect €13billion in income tax and that tax is collected from 2.4million taxpayers. 50% of the income tax (€6.5billion) comes from the top 6.5% of taxpayers. That means the top 156,000 taxpayers pay the same amount as the other 2,244,000 earners combined....

That is fairly meaningless data. To give it meaning, the distribution of the tax burden should be mapped onto income distribution.

FrankGrimes

P. Breathnach wrote: »

That is fairly meaningless data. To give it meaning, the distribution of the tax burden should be mapped onto income distribution.

It is very likely that those 156,000 taxpayers at least the same proportionate amount as the tax they pay. They may well even more income and are managing to avoid paying tax on some of it, but I don't believe these are meaningless figures - they cast doubt over any assertion that high earners are getting away without contributing their fair share of tax, which has been suggested by various groups quite frequently.

Likewise, we can assume that anyone not paying income tax at the lower end of the scale is on very low wages though I don't think the majority of people out there are aware that 38% of earners pay no income tax (I am still having difficulty believing this is true).

All in all, these figures make it quite clear that high earners are paying the bulk of the income tax and the low earners are not paying much tax. I personally agree with that principle, though I do feel that low paid workers should still make some symbolic contribution.

The main point is there are plenty of people out there under the impression that burden of tax is actually the other way around so these figures would go some way to at least getting clarity on the current distribution of the tax burden and if it helps people form more informed opinions on what to do next (regardless of what those opinions might be), that can only be a good thing as I think the current discussions are based too much on rhetoric and misinformation.

P. Breathnach

FrankGrimes wrote: »

It is very likely that those 156,000 taxpayers at least the same proportionate amount as the tax they pay.

Do you know that (I'm mentally filling in gaps in your sentence), or are you just supposing?

They may well even more income and are managing to avoid paying tax on some of it, but I don't believe these are meaningless figures - they cast doubt over any assertion that high earners are getting away without contributing their fair share of tax, which has been suggested by various groups quite frequently.

All it shows is that a lot of tax is paid by high earners; it does not prove that it is their fair share. To determine that, one of the first requirements is to relate what they pay to the income they have.

Likewise, we can assume that anyone not paying income tax at the lower end of the scale is on very low wages though I don't think the majority of people out there are aware that 38% of earners pay no income tax (I am still having difficulty believing this is true).

All in all, these figures make it quite clear that high earners are paying the bulk of the income tax and the low earners are not paying much tax. I personally agree with that principle, though I do feel that low paid workers should still make some symbolic contribution.

I don't follow all you say, or what meaning you are inviting us to take from it. Do take note, however, that income tax is not the only tax on income. PRSI has a noticeable impact on the pay packets of the low-paid.

Diarmuid

FrankGrimes wrote: »

I agree with the point that loopholes around tax exile status should be closed with tighter rules that make it prohibitive to try and setup as a tax exile while really doing most of your business in Ireland.

So following from that principle, I guess you will be encouraging the Irish government to not take the corporate tax from all the companies who put their European revenues through their shell offices in Ireland ?

K-9

FrankGrimes wrote: »

Likewise, we can assume that anyone not paying income tax at the lower end of the scale is on very low wages though I don't think the majority of people out there are aware that 38% of earners pay no income tax (I am still having difficulty believing this is true).

It would be explained by minimum wage workers and part timers eg. women with children working part time. Many 2 income families would have the Mother working part time. Also many Single parents work part time.

FrankGrimes wrote:

All in all, these figures make it quite clear that high earners are paying the bulk of the income tax and the low earners are not paying much tax. I personally agree with that principle, though I do feel that low paid workers should still make some symbolic contribution.

Agree with that, in the UK on a comparable wage as our minimum wage, tax and NIC are paid, not here.

P. Breathnach wrote: »

Do take note, however, that income tax is not the only tax on income. PRSI has a noticeable impact on the pay packets of the low-paid.

How? No PRSI on Minimum wage or many Part timers. Contrast with the UK were you pay NIC on minimum wage and their normal rate is 10%, not 6%.

I think you have just proven Frank Grimes point that people aren't aware how lowly taxed they are.

Diarmuid wrote: »

So following from that principle, I guess you will be encouraging the Irish government to not take the corporate tax from all the companies who put their European revenues through their shell offices in Ireland ?

Good point.

P. Breathnach

K-9 wrote: »

How? No PRSI on Minimum wage or many Part timers. Contrast with the UK were you pay NIC on minimum wage and their normal rate is 10%, not 6%.

So anybody getting over €352 a week is well paid? I know how PRSI works and, before posting, I checked just to be sure I hadn't overlooked anything. See: http://www.welfare.ie/EN/Publications/SW14/sw14_09/Pages/ClassA.aspx

I think you have just proven Frank Grimes point that people aren't aware how lowly taxed they are.

I didn't even notice him say that. I am principally dealing with the point that saying that 6.5% of all taxpayers pay 50% of income tax is, without more data, not very meaningful.

Your remark is cheap-shot stuff. Not only is it ill-founded, but even if it were true, one case proves nothing.

K-9

P. Breathnach wrote: »

So anybody getting over €352 a week is well paid? I know how PRSI works and, before posting, I checked just to be sure I hadn't overlooked anything. See: http://www.welfare.ie/EN/Publications/SW14/sw14_09/Pages/ClassA.aspx

That isn't the point. 38% don't pay Income Tax or PRSI. That is fair.

Compare it with the UK and come back to me.

P. Breathnach wrote:

I didn't even notice him say that.

I did.

P. Breathnach

K-9 wrote: »

... 38% don't pay Income Tax or PRSI...

Source?

K-9

P. Breathnach wrote: »

Source?

The original article in the OP.

38% don't pay income tax. No Tax on about €370 per week and no PRSI on €352 so it's a fair conclusion.

You really need to compare us with the UK and others.

We have low income tax and PRSI compared to international standards. That is my point, you don't seem to think so?

P. Breathnach

K-9 wrote: »

The original article in the OP.

38% don't pay income tax. No Tax on about €370 per week and no PRSI on €352 so it's a fair conclusion.

The original article did not mention PRSI. I brought it up as a material factor that had a bearing on the overall reading of the situation. What you say can make sense only if 38% of the working population are on less that €352 pw. I don't think that is likely to be the case. And if it is the case, it might justify a very high tax yield from the highest-paid 6.5% on the basis that incomes are so unevenly distributed.

You really need to compare us with the UK and others.

We have low income tax and PRSI compared to international standards. That is my point, you don't seem to think so?

Where did I say or imply that we are subject to high taxes on income? I don't believe that: I have noticed the political thrust of governments involving the PD party and their fellow-thinkers in FF. All I was doing was pointing out that the piece quoted by OP used data that, without context, did not prove anything useful.

johnnyskeleton

If they do increase higher rate taxes, or introduce a third rate, I can only hope that they do so wrt to the Laffer curve to ensure that maximum tax take possible. Saying it's not fair that the poor should be hit when the wealthy has more money is not a relevant consideration when looking at taxation policy at the moment. If the government is serious about reducing the budget deficit, I'm not sure that increasing income tax is a good thing.

Best explained by this:

Bar Stool Economics

Suppose that every day, ten men go out for beer and the bill for all ten comes to €100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay €1.
The sixth would pay €3.
The seventh would pay €7.
The eighth would pay €12.
The ninth would pay €18.
The tenth man (the richest) would pay €59.

So, that"s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers, he said, "I"m going to reduce the cost of your daily beer by €20. Drinks for the ten now cost just €80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the €20 windfall so that everyone would get his "fair share?" They realized that €20 divided by six is €3.33. But if they subtracted that from everybody"s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man"s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid €2 instead of €3 (33%savings).
The seventh now paid €5 instead of €7 (28%savings).
The eighth now paid €9 instead of €12 (25% savings).
The ninth now paid €14 instead of €18 (22% savings).
The tenth now paid €49 instead of €59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the €20", declared the sixth man. He pointed to the tenth man," but he got €10!"
"Yeah, that"s right", exclaimed the fifth man. "I only saved a dollar, too. It"s unfair that he got ten times more than I!"

"That"s true!!" shouted the seventh man. "Why should he get €10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn"t get anything at all. The system exploits the poor!"
The nine men surrounded the tenth and beat him up.

The next night the tenth man didn"t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn"t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

zreba

johnnyskeleton wrote: »

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

1. At least one who spotted this, I was just going to lose my faith in people posting here...

2. In reply to those of you, who think that tax increase (any kind) will bring any (long term) solution:

http://en.wikipedia.org/wiki/Tax_cut

"The immediate effects of a tax cut are, generally, a decrease in the real income of the government and an increase in the real income of those whose tax rate has been lowered. In the longer term, however, the effect on government income may be reversed, depending on the response that tax-payers make. Depending on the original tax rate, tax cuts may provide individuals and corporations with an incentive for investments which stimulate so much economic activity that even at the lower rate more net tax revenue will be collected."

http://www.moneychimp.com/articles/econ/tax_cuts.htm

"Yet most economists seem to agree that tax cuts really do provide a stimulus. The real reason may be that they provide flexibility: people who want to consume more can use their tax cut for that purpose; people who want to save more can use theirs to buy up the new government bonds. This is the perfect scenario during a recession, when prior over-investment has resulted in bloated inventory levels and poor private investment opportunities"


http://www.investopedia.com/articles/07/tax_cuts.asp
"Tax cuts, when used properly, have stimulated the economy. Many credit President George W. Bush's tax cuts for moving the economy out of recession. Similarly, in 1964, Congress enacted an 18% cut in personal taxes to spur growth. The legislation was designed to encourage consumer spending - many believe that it succeeded admirably as consumers delivered a textbook reaction.

According to a December 2004 article in Celtia.info, a magazine distributed in Celtic countries, tax cuts have also shown positive results in other countries as well. Ireland's recent tax cuts are believed to have improved living standards significantly. For years, the Irish were faced with high unemployment, budget deficits and high taxes. In 1986, Ireland faced a fiscal crisis. After reducing government spending, the government lowered taxes on both individuals and corporations. Over the next 13 years, Ireland's per capita income went from only 63% of the United Kingdom's average to besting it in 2000. Ireland now enjoys one of the highest standards of living in Europe.

According to a May 2007 article in the Herald Tribune, tax cuts in Poland, Slovakia and Hungary before their entry in the EU have spurred economic growth in those countries."


http://www.nber.org/digest/mar08/w13264.html
Tax Increases Reduce GDP

"Tax changes have very large effects: an exogenous tax increase of 1 percent of GDP lowers real GDP by roughly 2 to 3 percent."

*GDP:
http://en.wikipedia.org/wiki/Gross_domestic_product

"The gross domestic product (GDP) or gross domestic income (GDI) is one of the measures of national income and output for a given country's economy. It is the total value of all final goods and services produced in a particular economy; the dollar value of all goods and services produced within a country’s borders in a given year.[1] GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year). Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products, in the period. Third, it is equal to the sum of the income generated by production in the country in the period—that is, compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (or profits).[2] [3]
The most common approach to measuring and quantifying GDP is the expenditure method:
GDP = consumption + gross investment + government spending + (exports − imports),"

K-9

P. Breathnach wrote: »

The original article did not mention PRSI. I brought it up as a material factor that had a bearing on the overall reading of the situation. What you say can make sense only if 38% of the working population are on less that €352 pw. I don't think that is likely to be the case. And if it is the case, it might justify a very high tax yield from the highest-paid 6.5% on the basis that incomes are so unevenly distributed.

How many people you reckon are on between €352 and €370?

38% don't pay tax so the amount not paying PRSI wouldn't differ substantially.

You know the NIC Threshold in the UK?

P. Breathnach wrote:

Where did I say or imply that we are subject to high taxes on income? I don't believe that: I have noticed the political thrust of governments involving the PD party and their fellow-thinkers in FF. All I was doing was pointing out that the piece quoted by OP used data that, without context, did not prove anything useful.

We need to increase taxes but all the focus seems to be on people over €100,000 which is ridiculous in recessionary times Eg. the Unions suggesting a 48% tax rate but conveniently not quoting an income figure.

We have no tax or PRSI on the second highest minimum wage in Europe and one of the lowest PRSI rates in Europe. We need to focus on those too, not just people over €100,000.

zreba

K-9 wrote: »

We need to increase taxes...

I really think that increasing taxes although can give short term cash injection to the budget, in long term would work in completely opposite way, and it certainly won't help economy to boost again...

Increasing taxes can seem to be easy and quick solution for getting money, but it's also very stupid and really short-sightedness.

bigger taxes will not make Ireland more competitive

Godge

zreba wrote: »

I really think that increasing taxes although can give short term cash injection to the budget, in long term would work in completely opposite way, and it certainly won't help economy to boost again...

Increasing taxes can seem to be easy and quick solution for getting money, but it's also very stupid and really short-sightedness.

bigger taxes will not make Ireland more competitive

It all depends on the type of taxes you increase.

Tax companies more and they can move abroad.
Tax people and they can move abroad.
Tax consumption and people shop in the north and on the internet.

Tax land and it goes where? Tax bricks and mortar and it goes where?

Tax land and property and they have to be used to generate income. No more of the golden circle sitting on the development land in Dublin. No more derelict sites left for twenty years.

Godge

K-9 wrote: »

How many people you reckon are on between €352 and €370?

38% don't pay tax so the amount not paying PRSI wouldn't differ substantially.

38% seems incredibly high for earnings under €352. Yes a large number of them are part-time, low income but it seems to me that two other categories must be pretty high

- black economy tradesmen, taxi drivers etc.
- use of Section 23 and other property incentives by relatively high earners to legally reduce tax due to the minimum amount.

K-9

Godge wrote: »

38% seems incredibly high for earnings under €352. Yes a large number of them are part-time, low income but it seems to me that two other categories must be pretty high

- black economy tradesmen, taxi drivers etc.
- use of Section 23 and other property incentives by relatively high earners to legally reduce tax due to the minimum amount.

I've seen statistics of around 20/25% of the work force being on Minimum wage. Add in part timers, job sharers etc. and you'd be close. We are very dependent on services, including retail for jobs.

The figures are from the Revenue so it's unlikely the black economy is included.

PS. The tax threshold is about €370.

zreba

Godge wrote: »

It all depends on the type of taxes you increase.

Tax companies more and they can move abroad.
Tax people and they can move abroad.
Tax consumption and people shop in the north and on the internet.

Tax land and it goes where? Tax bricks and mortar and it goes where?

Tax land and property and they have to be used to generate income. No more of the golden circle sitting on the development land in Dublin. No more derelict sites left for twenty years.

yes, but consider the fact, that if people need to spend more money on e.g. land or bricks, they will have less to spend for other taxed goods, so the income to the budget can not change at all long term, but people will have less money to spend (level of living decrease), and this also affects production/business/services needs, so by the end of the day it's again Economy which will get hit, and then after some time the income from taxes can even be lower than originally, as there will be less people paying those taxes

P. Breathnach

K-9 wrote: »

How many people you reckon are on between €352 and €370?

38% don't pay tax so the amount not paying PRSI wouldn't differ substantially.

My initial gripe with this piece was that the data supplied made no sense without mapping it onto income distribution. My second gripe was that it treated income tax as if it were the only tax on income, neglecting PRSI, which has a different incidence (it falls proportionately more heavily on middle income groups because of the cap).

There seem to be people who want to make a case for something based on inadequate data. Here is something that might help a bit: http://www.revenue.ie/en/about/publications/statistical/income-distribution-statistics2007.pdf . It's 2005 data, but it's the best I can get for you. It still doesn't factor in PRSI as a tax on income, but you can't have everything.

You know the NIC Threshold in the UK?

Not relevant.

We need to increase taxes but all the focus seems to be on people over €100,000 which is ridiculous in recessionary times Eg. the Unions suggesting a 48% tax rate but conveniently not quoting an income figure.

We have no tax or PRSI on the second highest minimum wage in Europe and one of the lowest PRSI rates in Europe. We need to focus on those too, not just people over €100,000.

There is a lot of focus on taxing people with incomes over €100,000. It seems to be an arbitrary "safe" figure that most people don't expect ever to reach, so they do not feel threatened by such increases. Introducing a higher rate (say 50%) that kicks in at that income level might increase the total income tax take by about 5 to 10%: useful, but not enough.

At the other end of income scales, however, I think we need some general agreement about how much a person or couple or family needs to get by. I believe that no income below that level should be subject to any deductions, and everything above that level should be subject to some form of tax.

K-9

P. Breathnach wrote: »

My initial gripe with this piece was that the data supplied made no sense without mapping it onto income distribution. My second gripe was that it treated income tax as if it were the only tax on income, neglecting PRSI, which has a different incidence (it falls proportionately more heavily on middle income groups because of the cap).

There seem to be people who want to make a case for something based on inadequate data. Here is something that might help a bit: http://www.revenue.ie/en/about/publications/statistical/income-distribution-statistics2007.pdf . It's 2005 data, but it's the best I can get for you. It still doesn't factor in PRSI as a tax on income, but you can't have everything.

A quick glance would suggest it isn't too far of the figure of 38% not paying tax, though I will take a good look at it tomorrow. Good post.

I have suggested that the PRSI cap should be lifted, I always thought it was unfair that if you earn €54/55,000 PRSI drops from 6 to 2.

Bear in mind the self employed also bear a fair bit of the PRSI burden. No €352 threshold there.

P.Breathnach wrote:

Not relevant.

Huh? Of course it is. It points out that our thresholds are very high and our rate is much lower. It's why there is proper free Healthcare in NI. You made the point that €352 isn't a big wage, I'm making the point that in NI on that money, you'd be paying at least £600/700 in PRSI alone, never mind Tax.

P.Breathnach wrote:

There is a lot of focus on taxing people with incomes over €100,000. It seems to be an arbitrary "safe" figure that most people don't expect ever to reach, so they do not feel threatened by such increases. Introducing a higher rate (say 50%) that kicks in at that income level might increase the total income tax take by about 5 to 10%: useful, but not enough.

At the other end of income scales, however, I think we need some general agreement about how much a person or couple or family needs to get by. I believe that no income below that level should be subject to any deductions, and everything above that level should be subject to some form of tax.

Bear in mind we have FIS for families. That wouldn't be included in the Revenue tax figures obviously. FIS is calculated after tax and PRSI too, so even if the minimum wage was taxed, they'd get 60% of it back through FIS anyway.

That also is why comparisons with NI are fair. If we want to agree on minimum income limits, comparisons with NI are fair.

FrankGrimes

P. Breathnach wrote: »

At the other end of income scales, however, I think we need some general agreement about how much a person or couple or family needs to get by. I believe that no income below that level should be subject to any deductions, and everything above that level should be subject to some form of tax.

I haven't had a chance to look into the Revenue link you kindly posted so hope to do so soon. I fully agree with your viewpoint in the paragraph I have quoted. If there is a large number of people with income below the 'necessity threshold' then so be it and I do feel for those people - I was just surprised when I saw the 38% figure as incomplete as it may be, it does indicate that there are many more people on quite low incomes than I had previously thought.

P. Breathnach, you raise some very good points on this and other threads and obviously have some good insight to add to these discussions, but I do have to say I feel your manner comes across as unnecessarily confrontational and argumentative. Not sure if that is delibarate or if you may not be aware of it, but I wanted to highlight it as it is a little offputting and I feel it detracts from your contributions which is a shame. I'll continue to ignore these aspects of your comments and focus on thepositive aspects of the content and questions you raise.

P. Breathnach

K-9 wrote: »

... Huh? Of course it is. It points out that our thresholds are very high and our rate is much lower. It's why there is proper free Healthcare in NI. You made the point that €352 isn't a big wage, I'm making the point that in NI on that money, you'd be paying at least £600/700 in PRSI alone, never mind Tax.

My point about National Insurance in the UK not being a relevant comparator is somewhat similar to my initial point in this thread: it's data without sufficient context. If you want to make a comparison with the UK, then you have to broaden the discussion to the mix of taxes and services considered appropriate for the whole economy. You have now introduced some of the context, the provision of healthcare. But by the time all the context is brought in, we are in a very complicated discussion -- and this more limited one is proving difficult enough!

Bear in mind we have FIS for families. That wouldn't be included in the Revenue tax figures obviously. FIS is calculated after tax and PRSI too, so even if the minimum wage was taxed, they'd get 60% of it back through FIS anyway...

Operating Income Tax, Social Insurance, and Social Welfare provision as if they were all wholly separate systems can lead to absurdity. Imagine Joe has an income of €400 pw, and family commitments. He pays SW of €20 and IT of €30. Then the state determines that he needs €400 to make a minimum provision for himself and his family, so he is given €50 FIS. I think the financial relationship of the individual with the state could be usefully tidied up.

K-9

P. Breathnach wrote: »

My point about National Insurance in the UK not being a relevant comparator is somewhat similar to my initial point in this thread: it's data without sufficient context. If you want to make a comparison with the UK, then you have to broaden the discussion to the mix of taxes and services considered appropriate for the whole economy. You have now introduced some of the context, the provision of healthcare. But by the time all the context is brought in, we are in a very complicated discussion -- and this more limited one is proving difficult enough!

YEP, but we can't isolate Ireland alone. International comparisons is part of the context. Our standard of living is relevant, so is other countries.

P.Breathnach wrote:

Operating Income Tax, Social Insurance, and Social Welfare provision as if they were all wholly separate systems can lead to absurdity. Imagine Joe has an income of €400 pw, and family commitments. He pays SW of €20 and IT of €30. Then the state determines that he needs €400 to make a minimum provision for himself and his family, so he is given €50 FIS. I think the financial relationship of the individual with the state could be usefully tidied up.

The State already does this. Family with one Income under €500 after Tax and PRSI deserves a 60% Top up on income, despite NOT paying tax.
The state has determined this income limit and it ties in with your point about an income to get by.

ardmacha

How about a special corporation tax rate for super profits for sectors like retail. This could be structured to retain a low rate for competitive markets but cut in where excessive margins were being made. Such a change would not affect struggling business where margins are tight, but would allow the identification of those contributing to high prices.

nevey

FrankGrimes wrote: »

I have heard many suggestions that we should increase the tax rates on high earners and there is clearly a perception out there that high earners are getting away with paying no or very little tax. ...snip..
The linked article goes a long way towards dispelling this as a myth but I'd like to see what people on here think - are the figures correct and what would seem to be a good way to approach or tax base in the current climate?

The thing is that very high earners (what this article refers to) and high earners are very different things.

Okay - back of an envelope stuff here, but bear with me.

I knocked up a spread sheet with 400 rows ranging from 15K to 4million representing what I think would be a reasonable representation of the distribution of our population's income. Apply the tax rates and yup, by my highly approximated figures, those on salaries of 2 million and over contributed approx 50% of the tax. Good on them.

BUT, when most people refer to high earners, they are not talking about those earning millions. I would think that a salary over 100K would be a high earning and it is these very comfortably well off people that a tax system should address. If you put in an additional tax band in for earnings over this amount you can increase the total tax take significantly - by about 30% using my numbers.

Try making a spread sheet and play God for a few minutes - it is very interesting the way the numbers pan out!

bigstar

nevey wrote: »

The thing is that very high earners (what this article refers to) and high earners are very different things.

Okay - back of an envelope stuff here, but bear with me.

I knocked up a spread sheet with 400 rows ranging from 15K to 4million representing what I think would be a reasonable representation of the distribution of our population's income. Apply the tax rates and yup, by my highly approximated figures, those on salaries of 2 million and over contributed approx 50% of the tax. Good on them.

BUT, when most people refer to high earners, they are not talking about those earning millions. I would think that a salary over 100K would be a high earning and it is these very comfortably well off people that a tax system should address. If you put in an additional tax band in for earnings over this amount you can increase the total tax take significantly - by about 30% using my numbers.

Try making a spread sheet and play God for a few minutes - it is very interesting the way the numbers pan out!

see link in post no. 31 for an actual distribution of income, those on €75k+ pay 52% of taxes (at least in 2005 they did)

Lordsnutchi

Is it not criminal to increase taxes on all sectors to meet a deficit brought about by the folly of one?

zreba

LOSDAVOS wrote: »

Is it not criminal to increase taxes on all sectors to meet a deficit brought about by the folly of one?

1. Is it not criminal to force good people pay for a bad people (prisons costs etc...)?

2. 'folly one' even if would want to, will not be able to payback the budget

3. 'very high earners' don't know borders and limits, if they fell it's too expensive here for them, they'll simply move somewhere else

some suggestions here are crazy,all every1 looks at is increasing taxes.

the suggestion of a 3rd taxband of 50% + prsi, pension etc is the most ridiculous comment, i have only started working so my wages are still relatively low, but my boss is prob on about 100k because he worked hard for it, why should he suddenly be down to 40-43k after tax, thats about 900 a week while there would be some1 earning 550-600 aftertax for working a relatively unskilled job. mental, all this would result in is emigration to places like the middle east where the same person could ern 100-150k tax free and not pay anything.

think the country should look at other ways of doing things. people are taxed enought in this country, i would recommend the goverment to force the esb to cut costs, abandon there renewable plan temporarily to pass on a cost reduction in electricity. set up a renewable program for people who have money to get the first 10 years at a low tax rate to encorage people with money to invest in renewables, sell to the esb at the same price the esb has to pay for oil and gas. this also would create jobs and increase tax for government. esb can handle up to 20% of wind which we are no where close. at the same time we still creating clean air.

people on the dole and social welfare should get food vouchers, esb credits, public transport credits etc and actual cash payments cut substantially, €204 a week for the dole is madness, child benefit should be converted to chrildren clothes vouchers acceptable in all shops. some might say this is extreme but there was butter vouchers and stuff before.

the uk pay 40 pounds for the dole, why cant this government give €100 of vouchers and credits, get them at a 70% cost from suppliers and pay €50 cash to each person, paying an extra €20 per child. people on the dole and social welfare just need to get real and shop in lidl more and buys clothes from pennies instead of m&s and lifestyle

deals could be struck with shops to sell these vouchers at discounts to the government for distrubution, it benefits both partys.this alone in my opinion would save the government a hell of a lot of money no matter how extremem it sounds, i worked in a pub years ago and the managers used to joke that child benefit was profit day. this 1500 or is it 1300 now payment to children under 5 should be abandoned or readjusted through clothing vouchers or creche vouchers to make sure thats where the money is going.

at time like this, tighening of money and accountabily is paramount. administration wouldnt be a problem as it could go through the same channels of social welfare and every penny should be made accountable by the regional managers.

to me ,as you can see, tighening of social welfare should be done and it can be done without lessening the standard of living but rather making sure the money goes where its purpose is intended.

P. Breathnach

Deleted User wrote: »

some suggestions here are crazy...

When I saw your opening sentence, my guess was that I would not agree with what followed. I was right.

the suggestion of a 3rd taxband of 50% + prsi, pension etc is the most ridiculous comment, i have only started working so my wages are still relatively low, but my boss is prob on about 100k because he worked hard for it, why should he suddenly be down to 40-43k after tax

That is not the effect a third tax band would have.

thats about 900 a week while there would be some1 earning 550-600 aftertax for working a relatively unskilled job.

Many people in relatively unskilled jobs would be delighted to get such a big pay increase.

[I just glanced through the rest of your post, and gave up. No economics there, not even voodoo economics.]

Time Magazine

Deleted User wrote: »

some suggestions here are crazy,all every1 looks at is increasing taxes.

This is a thread about taxation. There are others on cutting costs. Economists are generally more concerned with the tax rates here, for example: "Philip Lane and others have argued in this newspaper that Ireland’s public services are not over generous; it is our tax system that is exceptional in its limited coverage and even more limited yield."

With regard to your suggestion vouchers should be given to social welfare recipients instead of money, most economists disagree with you. See point 10.

Also with your suggestion that a 50% tax band is ludicrous, in a similar spirit to the above quote, a lot of Irish economists wouldn't be against the idea because of the extent of the deficit.