Flat tax bands

murphaph

It has often puzzled me as to why more states don't employ a flat tax band system with no reliefs for anyone. I can see distinct advantages:

1) Everyone pays the same proportion of their income as tax, so low earners pay less than high earners, but the same proportion (say 15/20%).

2) Administration costs would be lower, no cryptic reliefs to work out. Average joes would benefit as they generally have less access to accountants to minimise their tax bills through complex relief structures. There would be no complex reliefs enabling the über-wealthy to pay almost no tax.

3) We might entice a few more entrpreneurs to start up businesses if we don't take such a large chunk of their hard earned money off them.

4) It would encourage ordinary joes to work harder, as earning more would not push them into a higher tax band, but would see them take home more pay (with a bit more for the govt too).

The current "progressive" tax structure seems to revolve around the premise that lower earners should pay proportionally less tax than higher earners, and tbh I'm not sure that's fair at all.

Banned Account

I would tend to agree to be honest. It seems to me that the lower you earn, the less you contribute to the funding of the state yet the more you stand to benefit from the state in terms of marginal support payments that are there.

Conversely, the more you earn, the more you contribute yet the less you benefit (as you're more likely to have private medical insurance and less likely to qualify for any state payments)

At least if everyone paid the same proportion of their income in tax, there would be no reason for complaining that one party was being screwed by the other. It would also foce the government into putting rational plans in place for growth rather than taking the lazy option and offering big juicy carrots to the wealthy in the guise of tax reliefs.

ei.sdraob

Some states do do that, and it makes things easier for business and people since it removes uncertainty and allowed for planning, it also make it easier for Revenue


Ronan Lyons, Karl Whelan and Gurdiev all had articles before on the above on their sites

The system is riddled with all sort of distortions so we endup in situations where it often makes more sense not to work or work less
which cant be good for the economy at all

Justin Collery

This is really interesting, maybe someone could check my numbers...

we have employed in the country

1.5m people earning an average of €35k (private sector)
350k people earning an average of €50k (public sector)

This gives gross earnings of €60bn ((1.5m x 35k) + (350k x 50k))

Income tax brings in about €10bn

If there was a flat rate tax an on all income of 16.67% (10 / 60) it would bring in the same as the current system.

I actually think it would being in more as we would have gotten rid of all the tax incentives and such a low rate would encourage others to domicile themselves here, much as our company tax rate does. This is quite a good idea, why do we not do this.

Tipp Man

I have always found it ironic that a tax systems which charges more to some people than others can be seen as fair. by definition it isn't fair, and what a misnomour the term "Progressive Tax System" is.

I really like the idea of a flat band across all pay scales - you have listed a lot of the benifits

At what level to people think the band would need to be at? I see 16-17% from jcollery which seems low. 20-25% maybe??

ei.sdraob

Tipp Man wrote: »

I have always found it ironic that a tax systems which charges more to some people than others can be seen as fair. by definition it isn't fair, and what a misnomour the term "Progressive Tax System" is.

I really like the idea of a flat band across all pay scales - you have listed a lot of the benifits

At what level to people think the bank would need to be at? I see 16-17% above which seems low. 20-25% maybe??

17% should be enough I remember reading (Karl Whelan?) article on how that should cover our expenditure (which needs go down one way or another anyways)


also see here

* Flat tax to be enacted on all incomes (preliminary estimates suggest 15-17% tax rate) with no discretionary deductions, but a generous upfront deduction of 1/2 of the median wage to be made available to all earners, plus 1/5 median wage deduction per child.

* Provision of strong (current level -10%), but life-time capped welfare provisions. Life-time cap will allow any able bodied adult in the country to have access to a cumulative maximum of 7 years of welfare provisions over their life time. Provision of welfare supports to those unable to work due to health or family circumstances (e.g caring for the disabled relative etc) to continue without life-time limits.

* Strong support for the disabled and the elderly must continue

* Wages for politicians and all senior servants earnings are to be tied to the National Disposable Income (NDI) on per capita basis (pcNDI): Taoiseach=3.5 times pcNDI; Ministers=3 times pcNDI; senior civil servants=max 2.7 times pcNDI; TDs/Senators=2.5 times pcNDI and so on. If the country earns more in disposable income, then those running it should get a reward, otherwise, they will automatically bear the same burden as the rest of economy. No bonuses to be allowed and all pensions to be converted to Defined Contribution plans.

* Benchmark Government spending to 35% of GDP, with emergency spending not to exceed 37% of GDP in any given year, and a balanced budget over every 3 year period. This allows for small emergency spending boosts in recessions, but prevents spending sprees in elections etc

* All quangoes, except those with immediate independent oversight authority (e.g FR and Competition Authority) are to be abolished and their functions transferred to respective departments. Responsibility for governance and management must rest with the executive branch of the state - i.e. Government.

* There should be no taxation without representation - self-employed individuals who are fully tax compliant should have access to same unemployment benefits as anyone else.

* Tax system should be fully reformed to simplify existent taxation and ensure full compliance. This will include, in addition to the flat income tax - abolition of all indirect charges and taxes, other than direct user fees which will be fully ring-fenced to provide revenue necessary to maintain specific service (e.g. bin charges, water rates etc). VRT will be abolished. Any excise taxes will be set at a level required solely to support provision of services directly associated with the underlying consumption charged. For example, petrol levy will apply only to the amount required to support environmental programme related to CO2 abatement and improvement of the environment. It will not be allocated into the general budget. There will be a fully transparent tax on land values (LVT), but not a property tax. The revenue from LVT will be split 50:50 between central & local authorities and local authorities will be allowed a discretion to vary their rate of LVT within reasonable parameters. For example, if LVT is levied at 1% pa, then local authority can be allowed to charge between 0.25% and 0.5% as it deems suitable, while the central government will collect 0.5%. CGT and CAT will be abolished for all investments held for 5 years or longer to encourage longer term savings and investment.

I wonder how can anyone left or right disagree with above very sensible points.

Cookie_Monster

Tipp Man wrote: »

I have always found it ironic that a tax systems which charges more to some people than others can be seen as fair. by definition it isn't fair, and what a misnomour the term "Progressive Tax System" is.

I really like the idea of a flat band across all pay scales - you have listed a lot of the benifits

At what level to people think the band would need to be at? I see 16-17% from jcollery which seems low. 20-25% maybe??

15%, but with 25% above a certain level, say 20k including scrapping of the levy and PRSI

at least this way those on very low incomes still have a bit more net pay to survive on. The saving on admin would also be huge as systems and staff can be cut right back as a much simpler system without all the credits etc.

I would also keep pension payment deductible at the above rates to keep encouraging people to invest in one.

ei.sdraob

Cookie_Monster wrote: »

15%, but with 25% above a certain level, say 20k including scrapping of the levy and PRSI

at least this way those on very low incomes still have a bit more net pay to survive on. The saving on admin would also be huge as systems and staff can be cut right back as a much simpler system without all the credits etc.

I would also keep pension payment deductible at the above rates to keep encouraging people to invest in one.

thats not a "flat" system ... but a "progressive" one....

Cookie_Monster

ei.sdraob wrote: »

thats not a "flat" system ... but a "progressive" one....

yes I realise that but you have to try and exempt very low earners from paying high levels. 25% of 20k means an lot more to someone than 25% of 50k, as they will have much much less to survive on, which is the reason for the tax band being the way they are in the first place I suppose. but if you lower the %age to a level which is sustainable on very low incomes then you lose a lot of revenue from higher incomes.

ei.sdraob

Cookie_Monster wrote: »

yes I realise that but you have to try and exempt very low earners from paying high levels. 25% of 20k means an lot more to someone than 25% of 50k, as they will have much much less to survive on, which is the reason for the tax band being the way they are in the first place I suppose. but if you lower the %age to a level which is sustainable on very low incomes then you lose a lot of revenue from higher incomes.

ah yes say it, say it, go on ........ "fairness" ...... there we go, that-a-boy

you missed the whole point of flat taxation, wikipedia goes into great detail on subject so do several articles over on irisheconomy.ie

murphaph

Cookie_Monster wrote: »

15%, but with 25% above a certain level, say 20k including scrapping of the levy and PRSI

at least this way those on very low incomes still have a bit more net pay to survive on. The saving on admin would also be huge as systems and staff can be cut right back as a much simpler system without all the credits etc.

I would also keep pension payment deductible at the above rates to keep encouraging people to invest in one.

This is not what I would want. This is just a watered down version of our current system.

I believe in a genuinely flat tax structure. As for pensions...the state pension should be set at a subsistence level. Those who wish to contribute to their retirement will benefit from paying less tax through their working lives and so will be able to save for that retirement. If people do not wish to save the extra take home pay, we shouldn't force them, but at the same time, they should not expect to be "bailed out" come retirement. They would have to get by on a subsistence payment if they hadn't bothered to save for their own retirement.

I would however create a state run pension saving system (similar to Germany's) and get the benefit of numbers.

Cookie_Monster

as a matter of interest is there any country in the world that does this?

Proper country, not some backwards 3rd world one?

Tipp Man

ei.sdraob wrote: »

17% should be enough I remember reading (Karl Whelan?) article on how that should cover our expenditure (which needs go down one way or another anyways)


also see here



I wonder how can anyone left or right disagree with above very sensible points.

Is above from Gurgiev?? I think he is excellent and doesn't get half enough attention compared to say McWilliams

And whether you are left or right you can't really argue with any of it

murphaph

Cookie_Monster wrote: »

as a matter of interest is there any country in the world that does this?

Proper country, not some backwards 3rd world one?

It seems a lot of countries with this are 3rd world, but that doesn't mean the flat tax caused their 3rd world status of course...

List

corkthai

i think slovakia have a flat rate of 19%
this is the same for corporate taxes.

ei.sdraob

murphaph wrote: »

It seems a lot of countries with this are 3rd world, but that doesn't mean the flat tax caused their 3rd world status of course...

List

A lot of them are in eastern Europe and some are even EU members, needless to say its not a flat tax that cause their issues (if anyting it seems their economies grew very rapidly after introduction as described in detail in the wikipedia article on flat tax) but historical reasons (those bloody communists :P)

Tipp Man wrote: »

Is above from Gurgiev?? I think he is excellent and doesn't get half enough attention compared to say McWilliams

And whether you are left or right you can't really argue with any of it

yes i pasted it from his article, alot more points in there that make alot of sense
do read the comments too its interesting how certain people try to paint him as an "outsider" (Russia also has a flat system of 17%) in those comments in order to discredit his points...

Cookie_Monster

the more I think about it actually, the more it makes sense to me.

@17% I'd pay nearly exactly the same amount of tax I do now with all the various credits etc, surprised me I thought it'd be higher.

Tipp Man

Just listening to the commentary and fallout from the budget and it seems clear that people really don't appreciate a couple of things

a) how few people are actually paying income tax in this country and the incredably small amout that are paying higher rate
b) how little appreciation there is for people who are paying the high tax rate

the general consensus seems to be why not tax the high earners even more, they have the money blah blah blah. An easy target in my opinion

What is even more amazing is that the very same people who are advocating higher taxes on the higher paid are the very same people who are shouting about social equality. Whats fair about some paying paying nearly all income tax?

It is really getting to a stage where a flat rate tax has got to be discussed seriously and warrents serioius discussion at a high political level and amoungst social and political commentators

As can be seen from this thread there seems to be very little down side to it

Shelga

Tipp Man wrote: »

Just listening to the commentary and fallout from the budget and it seems clear that people really don't appreciate a couple of things

a) how few people are actually paying income tax in this country and the incredably small amout that are paying higher rate
b) how little appreciation there is for people who are paying the high tax rate

+1

Why do a huge amount of people seem to view wealthy people as undeserving? That they are sitting in their ivory towers, eating caviar and using €50 notes to mop up their spilled champagne? You can be pretty sure that anyone who earns above €100k in a private company worked damn hard to get there. (Not to dredge up the PS argument- I'm just using a private sector worker as a neutral example).

I don't need people like Pearse Doherty speaking on my behalf and bleating on about taxing the rich, they can take it, blah blah blah. Does he not realise that they will just LEAVE the country, as they should. I want to be incentivised by my government to work hard, possibly start my own business, and make my own way. There is a limit to how much of this "hitting the poor where it hurts most" hyperbole I can listen to. If you're on €25k and don't like the prospect of cuts, you should be encouraged to work harder and find some way to MAKE MORE MONEY, not run to your union and bitch and moan. Obviously there are bigger socioeconomic issues at play, and it's not so easy to become the next Bill Gates in the middle of a deep recession, but it's something to consider.

As an example: Someone on €300k currently pays nearly €140k in tax, whereas someone on €25k pays €2600. Yet we demonise the rich. We should be thankful for every last one of them.

Sorry for going OT. I would agree with a flat tax rate of something like 25% (over a very low threshold as someone suggested, circa €15k).

Aard

Having a threshold means that it's not a flat tax.


Is there any merit in having a "harmonised" flat tax, where e.g. Income tax, CGT, VAT, Corporation tax, etc. are all the same rate? I believe I read previously that that would help in calculation.

Liam Byrne

Banned Account wrote: »

I would tend to agree to be honest. It seems to me that the lower you earn, the less you contribute to the funding of the state yet the more you stand to benefit from the state in terms of marginal support payments that are there.

On one level, that's true.

However what FF have failed repeatedly to take into account is that the bottom - say €1,000 to €2,000 a month - is required to actually survive.

So if you take €50 off someone who is earning €1,500 it's a massively different scenario to taking €50 off someone who is earning €15,000 a month.

One is petty (or truly "disposable") cash; the other is the difference between having electricity for that month.

Even assuming that things aren't as bad as that, that €50 could be 100% of the former's "luxuries" while it might be 1% of the latter's.

Likewise, a 4c increase in petrol is a much bigger percentage of a lower-paid person than someone earning a fortune.

No government should be ensuring that someone can't survive due to finances being too tight for food, water, heat, clothing light and a roof over their heads.

Everything else should be taxable, but that level should be sacrosanct.

Aard

@Liam Byrne:

What do you think of a flat income tax, coupled with a [progressive] wealth tax? The flat tax would affect low-earners more than high-earners, like you said, but the wealth tax would cancel that out to some degree.

irishh_bob

Shelga wrote: »

+1

Why do a huge amount of people seem to view wealthy people as undeserving? That they are sitting in their ivory towers, eating caviar and using €50 notes to mop up their spilled champagne? You can be pretty sure that anyone who earns above €100k in a private company worked damn hard to get there. (Not to dredge up the PS argument- I'm just using a private sector worker as a neutral example).

I don't need people like Pearse Doherty speaking on my behalf and bleating on about taxing the rich, they can take it, blah blah blah. Does he not realise that they will just LEAVE the country, as they should. I want to be incentivised by my government to work hard, possibly start my own business, and make my own way. There is a limit to how much of this "hitting the poor where it hurts most" hyperbole I can listen to. If you're on €25k and don't like the prospect of cuts, you should be encouraged to work harder and find some way to MAKE MORE MONEY, not run to your union and bitch and moan. Obviously there are bigger socioeconomic issues at play, and it's not so easy to become the next Bill Gates in the middle of a deep recession, but it's something to consider.

As an example: Someone on €300k currently pays nearly €140k in tax, whereas someone on €25k pays €2600. Yet we demonise the rich. We should be thankful for every last one of them.

Sorry for going OT. I would agree with a flat tax rate of something like 25% (over a very low threshold as someone suggested, circa €15k).

ive no problem with wealthy people who earned thier money on a level playing field , i do however destest the likes of GP,s , dentists , consultants , vets and other cossetted professionals who are only rich due to the fact that they operate in sheltered ( ring fenced from competition ) sectors of the economy , many of the consultants on 220 k state contracts put in no more than 20 hours per week and the rest of thier time is spent meeting private patients

3DataModem

In some ways a good idea.

However politically in a developed democracy this would be impossible to sustain.

Let's say Party A bring in a flat 15pc income tax for all.

Party B could turn around at the next election and offer to reverse it.... a huge number of voters would be a fair bit better off under a progressive regime.

Tipp Man

3DataModem wrote: »

In some ways a good idea.

However politically in a developed democracy this would be impossible to sustain.

Let's say Party A bring in a flat 15pc income tax for all.

Party B could turn around at the next election and offer to reverse it.... a huge number of voters would be a fair bit better off under a progressive regime.

I agree with what you are saying re the elections

But then how are we ever going to reform our income tax system to make it equitable for all?? If we don't try reform then it will never happen

Its a problem with the Irish physce though - I'll use everything as long as somebody else is paying - but don't expect me to pay for it and if you do I'm going to shout damn loud about it

The current furore over the budget is laughable - people on income levels who haven't paid tax for years are up in arms because now they are being asked to pay a bit of tax. They don't realise how lucky they've been for the last few years

I rarely agree with Kevin Myers but I think he makes some interesting points in this article

http://www.independent.ie/opinion/columnists/kevin-myers/kevin-myers-if-the-primary-goal-of-a-society-is-the-eradication-of-poverty-then-you-will-get-only-more-poverty-2454021.html

whatawaster

Tipp Man wrote: »

But then how are we ever going to reform our income tax system to make it equitable for all??

What is equitable for all? This itself is a contentious issue. Is it everyone paying the same amount of tax? Is it everyone paying the same proportion of their income in tax? Is a progressive system fair?

Personally, i'd definitely be in favour of a simpler tax system, one combining all charges - one with few or no reliefs or credits.

Something like:
€0 - €10,000 - tax @ 5%
€10,000 - €20,000 - tax @ 10%
€20,000 - €40,000 - tax @ 20%
€40,000 - €100,000 - tax @ 30%
€100,000 - infinite - tax @ 40%

I think there should be very few or no reliefs available - perhaps some for the disabled, the long-term ill. It would still be a very easy system to work. If you are self-employed you can enter your income on a calculator on the revenue site and it could easily give you your tax payable

A flat rate for all would be political suicide for anyone who suggested it.

Aard

In most highly developed countries, the lowest rate of tax is quite high, and the credits quite low. For example:

Belgium - 25%
Finland - 25%
Norway - 28%
Netherlands - 33%
Denmark - 36%
Iceland - 37%

Yes, the "poor" are higher taxed in these countries than in Ireland. However, they also get far more back from the State than in Ireland: cheap GP visits, extensive public transport, great education system, and higher purchasing power. And lower public debt to boot; it's win-win!

Perhaps it's counter-intuitive but a highly-taxed "poor" person gets far more back than a highly-taxed "rich" person. Part of the reason a flat-tax is attractive to me.

Aard

Here's a document by the people who were consulted in the formulation of many European flat-tax systems. It's a Q&A of flat tax: (PDF) http://media.hoover.org/sites/default/files/documents/0817993115_157.pdf


The full report is here: http://www.hoover.org/publications/books/8329


This is from an American perspective, were a 19% flat tax with deductions introduced at a federal level.