Note to Government : Flat Tax

maxwell smart

What about scrapping the present tax system and replacing it with one flat tax. So in other words, every person pays the same rate of tax, and there are no deductables, allowances or tax free gimmicks.

In Russia, they abolished their old tax system and replaced it with a flat tax rate of 13%, tax revenue rose 62% in the first year as there was no means for people to avoid tax.
In the US they reckon that a flat tax rate of 17% would raise the same amount as the current system does.
And before people start saying that those really rich people won't be paying as much (as a percentage) as the rest of us, at present really rich people don't pay tax!!
it would also be a fairer system.
I heard on the radio yesterday that some teachers are paying 15% tax on all earnings if they joined the profession before 1985(or so) due to an historical agreement!!

It would also cut down on a huge amount of staff in the Revenue!

johnathan woss

I can't believe so many people on this board are advocating a flat tax.

A flat tax is highly regressive.
Even in the States only the extreme right wingers want it.

Have I stumbled into the most right wing (economically) forum in ireland ?

P. Breathnach

maxwell smart wrote: »

... I heard on the radio yesterday that some teachers are paying 15% tax on all earnings if they joined the profession before 1985(or so) due to an historical agreement!!...

That's bollocks. Right up there with free prams for asylum-seekers.

cm2000

any idea how much it would be to cover our tax take now?? also would it just replace the income tax system or all tax, vat dirt corpo etc?

Dannyboy83

How about, instead of attacking him for a suggestion, perhaps we could try just explaining it to him?:mad:




To the OP:

I make 20,000
You make 50,000
Rich B@stard makes 200,000

In present system, I pay no tax.
In suggested system, after 10%, I'm coming out at 18,000

In present system, you pay 21% on 35,000 (7,350) and 43% on 15,000 (6450) coming out to E13,8000 (actually a bit lower with tax free credits in reality)
In suggested system, I pay 10% on 50,000 = 5,000


In present system, Rich B@stard pays 21% on 35,000 (7,350) and 43% on 165,000 (70,950) coming out to (78,300)
In suggest system, Rich B@stard pays 10% on 200,000 coming out to (20,000)

Can you see the huge gap here?

Person A (who needs money badly) is made even poorer, while B is made slightly richer & C (quite wealthy) is made considerably richer.

And while taking money from the poor guy and grossly enriching the rich guy, you have also made a shortfall of approximately 84,000 in tax revenue.

dave-higgz

maxwell smart wrote: »

at present really rich people don't pay tax!!

I've always wondered why this is the case.

What would a flat tax do to change that??

You say this would be an unavoidable tax but what's so unavoidable about tax at present??

Dannyboy83

dave-higgz wrote: »

I've always wondered why this is the case.

What would a flat tax do to change that??

Probably chase them out of the country to relocate somwhere else, if they end up paying more tax.
Like U2.

A flat tax rate would benefit them significantly........ in some ways, in some years.

You say this would be an unavoidable tax but what's so unavoidable about tax at present??

They can write off huge tax liabilities, in various ways, some legal, some not so legal.

Even the sSelf Employed can deduct fuel as expenses, there is a whole book of tricks that can be exploited, on the assumption that revenue do not have the manpower to investigate.

jhegarty

Dannyboy83 wrote: »

How about, instead of attacking him for a suggestion, perhaps we could try just explaining it to him?:mad:

I think the op's logic is that Rich B@stard will found some "tax efficient" way to make sure he pays far less tax than your figures suggest.

No idea how correct he is.

mikemac

dave-higgz wrote: »

I've always wondered why this is the case.

It's not that they aren't due to pay tax.
It's that with a clever accountant there a range of schemes available to write your tax liabilities off against.

Probably the most well known ones are property ones like Section 21. Section 50 too though in fairness that a good idea for a scheme as it was student accommodation. Hotels was another one, that's finished now though. In fact most of these are closed but Section 50 has a 10 year period afaik so it's still active if you got involved

There are tax advisors and all they do is reduce their clients tax bill and they are good at it.
There is nothing illegal about tax avoidance, the fault lies with the government if they are leaving open these loopholes. Many schemes are good but a lot should be scrapped.

I've not even mentioned "expenses", lol

dave-higgz

mikemac wrote: »

It's not that they aren't due to pay tax.
It's that with a clever accountant there a range of schemes available to write your tax liabilities off against.

Well why doesn't the government hire the best accountants (or at least all the unemployed ones). Together they'd be able to plug these loopholes in a flash!

Permabear

This post has been deleted.

Dannyboy83

donegalfella wrote: »

This post has been deleted.

To be honest mate, that overview looks like a biased Republican argument.

Then again, if I were rich, I would be in favour of it:D
No wondering why Arnold Schwarzenegger is a Republican coming from Austria

Q: Should the rich pay more?
A: Under a flat tax, the rich do pay more than the
poor. A wealthy taxpayer with 100 times more taxable
income than his neighbor will pay 100 times
more in taxes. However, a flat tax does not impose
special penalties on those who contribute the most
to the nation’s prosperity by subjecting them to
punitive and discriminatory tax rates. For those
who think the “rich” should pay a higher percentage
of their income, the generous family allowance
effectively creates a modest level of “progressivity.”
For instance, a family with an annual income of
$20,000 faces a tax rate of zero. Wealthy taxpayers
also benefit from the family allowance, but the
effective tax rate on an income of $1 million will be
only a tiny fraction below the statutory tax rate.
This approach is much fairer than the current
system, which penalizes investors, entrepreneurs,
and others who create wealth for the American
economy while simultaneously providing myriad
deductions, credits, exemptions, and other preferences
that are much more likely to be exploited by
upper-income taxpayers. The flat tax eliminates
these special-interest loopholes, ensuring that the
rich play by the same rules as other taxpayers.

They are rather economical with the truth.
In some respects at least.

johnathan woss

How would a flat tax stop tax evasion ?

I notice that there is no capital gains tax, etc of any kind so it would only be a single, flat income tax. How would this not lead to MORE tax evasion (avoidance, whatever) ?

Dannyboy83

johnathan woss wrote: »

How would a flat tax stop tax evasion ?

I notice that there is no capital gains tax, etc of any kind so it would only be a single, flat income tax. How would this not lead to MORE tax evasion (avoidance, whatever) ?

Working off the premise that you abolish the many means in which an individual or company can write off tax liabilties.
In these instances, they effectively compensate themselves with certain deductions or can lower their tax liabilities.

And paying at a flat rate, they would hand over x amount of money, where x maybe 20% of gross.
Whereas under the current system, they would hand over y, where y would be 2% of net which gets written off anyway.


The reality is that frequently, companies use the tax incentives to upgrade and improve their businesses. (e.g. purchasing assets for the business such as computers or cars or machinery and writing off the tax liability).

Despite the impact on the revenue stream being lowered, the stimulus on the economy can be greater, as well as better trained, safer, healthier workers.
This is in some instances, but not all of course.

Godge

Dannyboy83 wrote: »

How about, instead of attacking him for a suggestion, perhaps we could try just explaining it to him?:mad:




To the OP:

I make 20,000
You make 50,000
Rich B@stard makes 200,000

In present system, I pay no tax.
In suggested system, after 10%, I'm coming out at 18,000

In present system, you pay 21% on 35,000 (7,350) and 43% on 15,000 (6450) coming out to E13,8000 (actually a bit lower with tax free credits in reality)
In suggested system, I pay 10% on 50,000 = 5,000


In present system, Rich B@stard pays 21% on 35,000 (7,350) and 43% on 165,000 (70,950) coming out to (78,300)
In suggest system, Rich B@stard pays 10% on 200,000 coming out to (20,000)

Can you see the huge gap here?

Person A (who needs money badly) is made even poorer, while B is made slightly richer & C (quite wealthy) is made considerably richer.

And while taking money from the poor guy and grossly enriching the rich guy, you have also made a shortfall of approximately 84,000 in tax revenue.

your analysis looks great in theory.

However, in practice, in the current system, your rich b@stard has invested in several BES schemes, owns several Section 23 properties (and other similar), puts a fortune into his pension scheme which buys other properties, invests in a couple of films, pays himeself generous non-taxable expenses etc. and ends up paying less tax than example B, the person who makes 50,000.

It is surprising that such a system hasn't got support in Ireland as it hits the richest and poorest hard and gives the middle income earner a tax break.

All these ideas go back to who do you want to pay? NOT ME says everyone.

P. Breathnach

Godge wrote: »

However, in practice, in the current system, your rich b@stard has invested in several BES schemes, owns several Section 23 properties (and other similar), puts a fortune into his pension scheme which buys other properties, invests in a couple of films, pays himeself generous non-taxable expenses etc. and ends up paying less tax than example B, the person who makes 50,000.

So the idea is that we bring in a system that hits the poorest members of our community hard in order to get something from the rich bastards who use various schemes to reduce their tax?

The first thing to remember is that not all high-income people are bastards, and many -- probably a very large majority -- make little use of tax breaks other than for pension provision. It may be different with very high income people, those with incomes over, say, €500,000 pa.

There is an easier way to deal with those who exploit tax shelters. Remove most of them on the basis that they do not serve a valuable social purpose; restrict the rest considerably.

Godge

P. Breathnach wrote: »

So the idea is that we bring in a system that hits the poorest members of our community hard in order to get something from the rich bastards who use various schemes to reduce their tax?

The first thing to remember is that not all high-income people are bastards, and many -- probably a very large majority -- make little use of tax breaks other than for pension provision. It may be different with very high income people, those with incomes over, say, €500,000 pa.

There is an easier way to deal with those who exploit tax shelters. Remove most of them on the basis that they do not serve a valuable social purpose; restrict the rest considerably.

I think you have the very large majority the wrong way round. look at the really high earners - Tony O'Reilly, U2, Denis O'Brien, J.P. McManus - they don't even live here for tax purposes. One thing I respect Michael O'Leary for is that he has remained tax-resident in Ireland.

However, given the army of accountants in Ireland and the extent of various tax-related property supplements in newspapers over the last few years, I think there is a lot of tax avoidance (which is legal but wrong, a distinction Bertie Ahern cannot make) out there. I agree with you fully that most tax shelters should be removed and that includes the pension provisions.

silverharp

P. Breathnach wrote: »

There is an easier way to deal with those who exploit tax shelters. Remove most of them on the basis that they do not serve a valuable social purpose; restrict the rest considerably.

There is a better reason , they distort the market. Property reliefs pumped up prices, pension reliefs created a fat pension industry and both ended up with a complacent attitude that has now come back to burn many . I find this "social purpose" reasoning to be a Trojen Horse for every crack pot theory on social engineering and vote grabbing politician.

maxwell smart

Well now, having posted while in a drug fuelled (legal prescription medicine for strep throat!) haze, I never realised that I would be classed as either a right winger or a lover of rich [EMAIL="B@stards"]B@stards[/EMAIL] (not guilty to either charge!)

I am neither for or against the premise of a flat tax, it certainly has both pros and cons, but our present tax system has failed. It is unfair and it supports a bloated service industry which does nothing productive for the country except increases the legal avoidance of tax.
There would also be a huge reduction in staff numbers in he Revenue commissioners (perhaps they could be redeployed to help out in the social welfare offices)?

Anyway......let the debate continue!

P. Breathnach

Godge wrote: »

I think you have the very large majority the wrong way round. look at the really high earners - Tony O'Reilly, U2, Denis O'Brien, J.P. McManus - they don't even live here for tax purposes. One thing I respect Michael O'Leary for is that he has remained tax-resident in Ireland.

I made a distinction between people with high incomes and those with very high incomes, a distinction you didn't make. Now you name a few of the uber-rich as if those examples support your ideas about the rich.

Further, I think the members of U2 and J.P. McManus are resident in Ireland.

Rockshamrover

I don't know much about economics and tax so forgive the following if it sounds silly.

Why not have the flat tax idea (no allowances or exceptions bit) but at different rates based on income. That way everybody pays tax but pay based on the assumption that the more you have the more tax you can afford to pay.

Everyone pays no matter what your income.

P. Breathnach

silverharp wrote: »

There is a better reason , they distort the market. Property reliefs pumped up prices, pension reliefs created a fat pension industry and both ended up with a complacent attitude that has now come back to burn many . I find this "social purpose" reasoning to be a Trojen Horse for every crack pot theory on social engineering and vote grabbing politician.

Tax incentives shape people's decisions. I think that Section 23, for example, might have served a useful purpose when it was first introduced (I haven't researched it, so I won't stand over that idea). It ran well past its sell-by date.

Many of the more recent property development tax incentive schemes were not obviously needed or useful. Who needs three new hotels in small towns with little tourism?

I believe that politicians have corrupted the worthy idea of using tax incentives for social purposes, and instead prioritised vote-grabbing and doing favours for friends.

ART6

Whatever the merits or otherwise of a flat tax system, if it was established as income and corporation taxes only then I suspect that the income tax each individual would pay would be eye watering! Since it would eliminate all the many stealth taxes, for the first time the people would discover just how much their government is actually costing them, and that's why I have no doubt that no politician in Ireland would ever support such an idea.;)

Dannyboy83

P. Breathnach wrote: »

I made a distinction between people with high incomes and those with very high incomes, a distinction you didn't make. Now you name a few of the uber-rich as if those examples support your ideas about the rich.

Further, I think the members of U2 and J.P. McManus are resident in Ireland.

Not had a chance to read everything yet, but just to clarify:

U2 are tax resident in The Netherlands

http://www.irishtimes.com/newspaper/breaking/2009/0225/breaking60.html
U2 moved their publishing arm to the Netherlands in 2006 after the Government capped tax-free earnings for artists at €250,000. Previously, U2 had been one of the biggest beneficiaries of Ireland's tax-free status for artist royalties.

On the other hand

Accounts for 2007 for U2 Ltd show the band paid out more than €21 million in wages in 2007 in a relatively quiet year where they were not touring or releasing new material.

Jp McManus is tax resident in Geneva, Switzerland but is known for having made very large donations to several hospitals and cancer charities.

Thomas_S_Hunterson

some university professor in the states wrote:

Since it is tax season let's put tax cuts in terms everyone can understand.

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 pay $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 outside Alberta where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

At present the well off do actually pay the majority of the tax bill.

I don't have the figures to hand but I believe the top 5/10% of earners cover 50% of income tax receipts

Dannyboy83

Well, I agree with what you're saying.

But the point they are making is that the tenth man doesn't actually pay the $49 because he using loopholes

Godge

P. Breathnach wrote: »

I made a distinction between people with high incomes and those with very high incomes, a distinction you didn't make. Now you name a few of the uber-rich as if those examples support your ideas about the rich.

Further, I think the members of U2 and J.P. McManus are resident in Ireland.

5,000 tax exiles, I don't think we are talking just about the uber-rich.

U2 are tax-resident in the Netherlands. J.P. McManus is tax-resident in Switzerland to my knowledge. Both of them make the clear case for a property tax as while you can move income, companies and tax-residency abroad, you can't move a mansion in Killiney or an obscene ranch in Tipperary abroad (short of declaring independence, that is)