Everyone sharing the pain?

K-9

Budget 2011: Bumper payday for self-employed high earners · TheJournal.ie

THOUGH THEY MAY be in the minority, self-employed people earning over €200,000 have reason to celebrate the passage of Budget 2011 – it means that they will actually be better off under the new measures.
TheJournal.ie’s Budget calculator reveals that single self-employed people earning exactly €200,150 a year will be totally untouched by the Budget measures announced yesterday – and that those earning above that amount actually end up paying less to the state than they did previously.
The strange results come about because of the reform of the PRSI and social insurance systems, which see the income levy scrapped and replaced by a new Universal Social Charge.
Single people earning the ‘magic number’ of €200,150 (or single-income married couples earning €206,150) see a modest increase in their income tax, and are hit significantly by the new Universal Social Charge, but any hit they take is offset by the abandonment of the income levy and by the reduction of PRSI, which is being phased out.
For single people on the ‘magic number’, income tax increases by €936, and the Universal Social Charge by €13,329 – but the drop in the income levy (€7,009) and PRSI (€7,256) render the new increases redundant.
The reform means that a single self-employed person on €250,000 a year stands to gain €1,495 over the course of 2011 – while those earning €500,000 stand to benefit to the tune of €8,995.
The select few earning €1m a year through their own businesses benefit to the tune of €23,995 – or €1,999 every month – under the new reforms. Similar figures are returned by the Budget calculator of accountancy firm Deloitte.
The reforms were passed by the Dáil in the same vote as the one which reduced the minimum wage by €1 an hour – cutting the annual wage earned by a minimum wage employee by 11.5% a year.
Labour finance spokesperson Joan Burton described the “bonanza” for the self-employed as “a common theme with this Fianna Fáil government” and said her party had proposed a new increased tax rate for couples earning over €200,000 of 48%.
Jimmy Kelly, the Irish regional secretary of trade union UNITE, said the union was asking its members “to make their voice heard to persuade those politicians with a shred of conscience” to oppose the Budget.
“Politicians stand up and say it is fair because everybody feels the pain, but these figures show that this is a blatant lie.”
Announcing the Budget measures in the Dáil yesterday, finance minister Brian Lenihan said the current system of taxation was “no longer fit for purpose”, saying that the 8% of Irish people earning €75,000 or more currently paid 60% of all income tax.






This one seems to have slipped under the radar while everybody has a go at Public Servants not getting hit, Welfare not hit enough etc.


Yes, they pay high amounts of tax and PRSI but, when minimum wage is being cut, people on €25,000 are seeing tax rises of 5% of their Net pay, it's hardly sharing the pain?

RedXIV

In fairness, I'd like to have seen more done to promote people becoming self-employed especially at that level because they are far more likely to hire more people. For example, the self employed person earning over a million a year getting €23,995 – or €1,999 every month extra a year could easily employ someone for that money.


I should point out as well that a HUGE number of the self employed make nothing near those numbers and they are taking a hit in the budget something I would have been against personally

seamus

While I tend to agree that it's absurb that someone on such major money would benefit so massively, I imagine this is a side-effect of spreading out the tax burden so that more people are brought into the tax net and the contributions are spread out more fairly.

Previously those on higher salaries have been paying far more tax than those on lower salaries - nearly 90% of the population will pay no tax or tax at the lower rate this year. This had to be addressed to make more people pay at the higher rate *and* take more money off those who were previously exempt.

The tax bands are at such a low level in comparison to huge salaries, that changes in the tax bands and credits rarely make a significant difference to huge earners because their exempt salary only makes up a tiny % of their overall salary.

I think in the interests of simplicity, it's probably unavoidable that the few people on enormous salaries will contribute a little less than they have been in the past years. However, I'm sure if a little more effort was put in, it could be avoided.

These big earners will still account for the bulk of income tax paid at the end of the day, so I'm not going to foam at the mouth over tiny figures such as these - if there are 1,000 people earning over €500k in this country, then the adjustment only accounts for a drop of €8m in the tax take from these people. They will still be paying a total of €250m in income tax between them.

By contrast, that €8m can be recouped by increasing the tax payable by PAYE workers by just 35c per month.

It's all about scale - individual circumstances are irrelevant.

Tipp Man

Have a flat tax on all income, then you won't have any of this carry on

Everybody pays tax at say 25% on every penny they earn

Its the fairest way on everybody

K-9

Obviously, it is about scale and as I pointed out in the OP, they do pay high actual amounts of tax and PRSI, it is more about example.

The strange thing about it is, a self employed person struggling on say €20,000 Gross, or choosing to take very little out of the business is down about 4% Net.

seamus

Tbh, self-employed people in general get a very raw deal in this country.
The barriers to getting started are high because there are few incentives available to businesses who aren't already established, the tax burden on a low-earning self-employed person is higher than a PAYE worker on the same money, and there is absolutely zero safety net for those whose businesses fail.

The government focusses a lot of energy in attracting business here and incentivising investment for already-established SME's, but makes it extremely difficult for entrepreneurs to get started.

oscarBravo

seamus wrote: »

...the tax burden on a low-earning self-employed person is higher than a PAYE worker on the same money, and there is absolutely zero safety net for those whose businesses fail.

As a proprietary director of a small limited company, I'm technically self-employed. I am a PAYE worker, my PRSI was increased in the budget, and from what I can tell I'm still entitled to nothing whatsoever in return for the PRSI I pay.

Cavehill Red

I said it on the day - it was a budget the rich were delighted about.

ei.sdraob

Hmm, well spotted @ K-9 this system is rediculos now!

checkout someone who starts a business (like moi) and only gets paid average wage

i started thread on that here

new companies dont exactly have much money to splash out on salaries

---

tho on some further thinking, if you do start a successful company and if could afford to pay yourself 250,000 salary

why would you pay yourself so much?
taking money out of own company in salary is a very expensive way of going about it


for example lets say you develop an iphone app and it makes your company 300,000, after cost you could afford to pay yourself 250,000 salary
but you endup paying more than half of this in taxes
the alternative is to pay yourself ~40,000 and keep the rest of the money in the company at 12.5%, now you can pay yourself 40,000 the next year and for few years after

Giblet

Tipp Man wrote: »

Have a flat tax on all income, then you won't have any of this carry on

Everybody pays tax at say 25% on every penny they earn

Its the fairest way on everybody

For most people that would be a massive increase, probably 200 or more a month extra than they currently pay.
The magic number is about 17-18%.

K-9

seamus wrote: »

Tbh, self-employed people in general get a very raw deal in this country.
The barriers to getting started are high because there are few incentives available to businesses who aren't already established, the tax burden on a low-earning self-employed person is higher than a PAYE worker on the same money, and there is absolutely zero safety net for those whose businesses fail.

The government focusses a lot of energy in attracting business here and incentivising investment for already-established SME's, but makes it extremely difficult for entrepreneurs to get started.

Indeed. Taking 5% of somebody struggling on €20,000 a year isn't going to address that, neither is giving tax cuts to people on 200k.

oscarBravo wrote:

As a proprietary director of a small limited company, I'm technically self-employed. I am a PAYE worker, my PRSI was increased in the budget, and from what I can tell I'm still entitled to nothing whatsoever in return for the PRSI I pay.

It's limited compared to Class A PRSI, but it isn't correct to say you would get nothing:

What social welfare benefits does my PRSI payment cover? » Working with your spouse: how it affects your social welfare contributions and entitlements - SW124 » Publications » Department of Social Protection

Jobseekers Allowance is available if the means test is satisfied.

ei.sdraob

to follow on from my example above

once again why would you pay yourself so much? its a very expensive way of enjoying the fruits of your work


top of my head some options available:

* take the 250,000 as directors loan, pay 20% withholding (or whatever its called) tax, you get this 20% back if you ever repay the loan

* close the company and pay capital gains on the sum

* leave the profit in company and pay corpo tax, invest the remainder

K-9

ei.sdraob wrote: »

Hmm, well spotted @ K-9 this system is rediculos now!

checkout someone who starts a business (like moi) and only gets paid average wage

i started thread on that here

new companies dont exactly have much money to splash out on salaries

---

tho on some further thinking, if you do start a successful company and if could afford to pay yourself 250,000 salary

why would you pay yourself so much?
taking money out of own company in salary is a very expensive way of going about it


for example lets say you develop an iphone app and it makes your company 300,000, after cost you could afford to pay yourself 250,000 salary
but you endup paying more than half of this in taxes
the alternative is to pay yourself ~40,000 and keep the rest of the money in the company at 12.5%, now you can pay yourself 40,000 the next year and for few years after

Exactly, that is more my point. I'm not having a dig at the guy on 250k, good luck to him if he can afford to draw that down. It must be a bit galling to the guy on 20k trying to get by and build up a business.

ei.sdraob

What I am trying to get at is that

its unlikely someone who is self employed would even consider paying themselves more than 50K income if they have a profit in company

i am not an accountant or tax adviser but claiming so much income is an extremely expensive and stupid way of tapping into the money your company made

Tipp Man

Giblet wrote: »

For most people that would be a massive increase, probably 200 or more a month extra than they currently pay.
The magic number is about 17-18%.

Well you are correct, the figure that seems to meet the current tax take is about 17-18% from what i have read

And you are right that some people would see an increase and that's because currently they are paying nothing, 8% of people paying 60% is completly unfair and unjust

Whats amazing is how little everybody would have to pay if we all paid the same, I mean 17% is a low rate regardless of your income level. It should be the very minimum that everybody is expected to pay

Tipp Man

ei.sdraob wrote: »

What I am trying to get at is that

its unlikely someone who is self employed would even consider paying themselves more than 50K income if they have a profit in company

i am not an accountant or tax adviser but claiming so much income is an extremely expensive and stupid way of tapping into the money your company made

you would literally want to be off your head to take that kind of money out of your company as income (not you personally obviously)

ei.sdraob

Tipp Man wrote: »

you would literally want to be off your head to take that kind of money out of your company as income (not you personally obviously)

yeh its something like 50% gone in a poof, when you have other options available to tap into the money
the 1500 gain or so that was mentioned for self-employed on 250K would really make little difference when you could be saving 100,000+ by being smarter and/or more patient
maybe some accountants can comment on this thread, i cant imagine anyone in this scenario be foolish enough to take so much via income payment

Giblet

Tipp Man wrote: »

Well you are correct, the figure that seems to meet the current tax take is about 17-18% from what i have read

And you are right that some people would see an increase and that's because currently they are paying nothing, 8% of people paying 60% is completly unfair and unjust

Whats amazing is how little everybody would have to pay if we all paid the same, I mean 17% is a low rate regardless of your income level. It should be the very minimum that everybody is expected to pay

Actually, someone on between 30 - 40k paying 25% would lose between an additional 200-350 euro a month. These currently pay tax.

Mister men

Tipp Man wrote: »

Have a flat tax on all income, then you won't have any of this carry on

Everybody pays tax at say 25% on every penny they earn

Its the fairest way on everybody

So a guy getting paid 7.65 an hour should get taxed 25% the same as a guy on 30 euro an hour? Nothing fair about that imo.

ei.sdraob

Mister men wrote: »

So a guy getting paid 7.65 an hour should get taxed 25% the same as a guy on 30 euro an hour? Nothing fair about that imo.

its a very simple system and is already used in plenty of countries who are enjoy growth, we had a thread on that

it is also very fair and very easy to understand for all, saving money in administration

if your definition of "fair" means someone else has to pay for you then of course you would disagree

Tipp Man

Giblet wrote: »

Actually, someone on between 30 - 40k paying 25% would lose between an additional 200-350 euro a month. These currently pay tax.

I'm not so sure about that at all.

Under a flat system a single 40k income would pay 10k tax - taking home 30k

Under the current sytem a single 40k income would pay 9,666 tax (I include PRSI and all levies - these would be abolished under the flat system) - taking home 30,333 and that is even after taking account of the worst budget in the history of the state

So a very very small change

And these calculations are at the flat rate of 25% which is too high as we said - 17-18% is more likely and closer to what's needed.

Tipp Man

Mister men wrote: »

So a guy getting paid 7.65 an hour should get taxed 25% the same as a guy on 30 euro an hour? Nothing fair about that imo.

What's not fair about it

Everybody pays the same rate

If your on 7.65 then the incentive is there to get to 30 an hour - a flat rate would give more people an incentive to work harder and improve themselves and their situations

pigeonbutler

Mister men wrote: »

So a guy getting paid 7.65 an hour should get taxed 25% the same as a guy on 30 euro an hour? Nothing fair about that imo.

Thats because everyone has a different view of what's "fair". There's no objective view of what makes a fair tax system. It's a values based judgement.

IMO everybody should pay a meaningful amount of tax but there shook be an element of social solidarity I.e the rich paying more. Btw we already have that system. Our tax system is far more progressive than that of most of the apparently "fairer" European societies like Germany, Denmark, Belgium, Sweden.

RichardAnd

I don't fully agree with this "sharing the pain" slogan. Those on huge salaries who are making that money for themselves shouldn't be forced to pay out the ear just because they have money. As an astringent believer in capitalism where people rise and fall by their own merit, I believe that a man who earns himself 2 to 3 hundred grand a year shouldn't be forced to pay a huge chunk of that out once again in tax. Certainly, he should pay some if he chooses to live here, but he shouldn't be forced to share his money to fullfill some socialist agenda.

I pay my taxes and I'm happy to do so. My father, who earns several times my salary pays his. He pays taxes which more than cover what he would cost the state each year in terms of services so he's more than paying his way. Let's leave it at that I say and let the man enjoy the fruits of years of hard work.

ei.sdraob

pigeonbutler wrote: »

Thats because everyone has a different view of what's "fair". There's no objective view of what makes a fair tax system. It's a values based judgement.

IMO everybody should pay a meaningful amount of tax but there shook be an element of social solidarity I.e the rich paying more. Btw we already have that system. Our tax system is far more progressive than that of most of the apparently "fairer" European societies like Germany, Denmark, Belgium, Sweden.

Yes and now our tax system is bust even FF are admitting it now,

since so many people were taken out of it, the same people who want hospitals and teachers, but of course don't want to pay for it, someone else should, preferably some who is not as lazy

seamus

Mister men wrote: »

So a guy getting paid 7.65 an hour should get taxed 25% the same as a guy on 30 euro an hour? Nothing fair about that imo.

It's actually the fairest way that you can do it because it makes all contributions proportional - those who can afford to pay the most, do. And those who can't afford to pay much, don't.

It would also drive *down* costs for companies because they don't have to offer the same large salaries and raises to people in the higher tax band. When you're on the lower tax rate, an increase of €1,000 per annum is roughly €60 a month in your pay packet. For someone on the higher rate, it's more like €40 - which is relatively worth far less than the €60 is to the person on the lower band.

As it stands, a "meaningful" pay increase of €100/month for someone on the higher rate of tax, costs the company €2,400/year. With a 25% blanket tax, it would only cost them €1,600. This means that you instantly reduce the cost of bonusses and wage increases by more than 30%.

Not something that could be done overnight, obviously. Someone currently pulling €20k simply cannot afford to lose €4k overnight, they'd be ruined. But you could slowly introduce it so that it's mostly implemented over the lifetime of a single government.

Tipp Man

pigeonbutler wrote: »

Thats because everyone has a different view of what's "fair". There's no objective view of what makes a fair tax system. It's a values based judgement.

IMO everybody should pay a meaningful amount of tax but there shook be an element of social solidarity I.e the rich paying more. Btw we already have that system. Our tax system is far more progressive than that of most of the apparently "fairer" European societies like Germany, Denmark, Belgium, Sweden.

You call it progressive but in fact it is far more unfair and unjust which is why such a small %age of taxpayers pay such a huge amount of the tax bill - something like 8% pay 60% of the total

You go to Germany Denmark etc and you won't see a stat like that and the main reason is that everybody pays tax - but here they don't - in fact a huge amount of people don't.

Those countries that you mentioned as "apparently fairer" they are "actually fairer"

ei.sdraob

a flat rate system would also require closing all sorts of loopholes and subsidies now in place, to ensure that everyone including the highest earners pay

sherdydan

everyone is sharing the pain!!!

except of course the pensioners.... how dare we touch them..... the miserable money grabbing b*stards :mad:

seamus

ei.sdraob wrote: »

since so many people were taken out of it, the same people who want hospitals and teachers, but of course don't want to pay for it, someone else should, preferably some who is not as lazy

It's something of an anomaly in our system that those who proportionally put the most pressure on core services of healthcare, education and defence are those who contribute the least towards paying for it.

Tipp Man

seamus wrote: »

It's something of an anomaly in our system that those who proportionally put the most pressure on core services of healthcare, education and defence are those who contribute the least towards paying for it.

It is an anomaly and a very unfair 1

yet these people are the ones who shout the loudest, get the most airtime, and by enlarge go unquestioned on what they are saying

Capt'n Midnight

ei.sdraob wrote: »

to follow on from my example above

once again why would you pay yourself so much? its a very expensive way of enjoying the fruits of your work


top of my head some options available:

* take the 250,000 as directors loan, pay 20% withholding (or whatever its called) tax, you get this 20% back if you ever repay the loan

* close the company and pay capital gains on the sum

* leave the profit in company and pay corpo tax, invest the remainder

Did they close the loophole yet on the pension dodge where you could invest in a pension tax free and borrow against it ?

Capt'n Midnight

Back in '98 the average industrial wage was £428.82 = £22,300pa

I was on £16K and paying PRSI + TAX of 28.9% - just to give people an idea of how far we moved from sustainable taxing policies to windfall taxes


Another point here is of course the price of houses was proportional to the supply of money. So had the government just taxed income then the revenue would have benefited instead of the developers. And the collapse in house prices would not have required large changes in personal taxation.

K-9

Capt'n Midnight wrote: »

Back in '98 the average industrial wage was £428.82 = £22,300pa

I was on £16K and paying PRSI + TAX of 28.9% - just to give people an idea of how far we moved from sustainable taxing policies to windfall taxes


Another point here is of course the price of houses was proportional to the supply of money. So had the government just taxed income then the revenue would have benefited instead of the developers. And the collapse in house prices would not have required large changes in personal taxation.

Indeed. All the main political parties bought into it as well.

When you compare our tax rates and in particular, Social Insurance rates to Northern Ireland, you get an idea of where we are at. The new social charge will address that, but of course we are doing this a*se about ways! In a recession.

caseyann

I heard something on news about those who are in the 200 thousand pay bracket will get richer off this budget.Anyone know what they were talking about.
And lets face it someone who can afford to pay more tax will never share the pain.
I was watching prime time which had an a ex taxi driver on, now living in a hostel after taxi been robbed,getting to little from insurance to set himself up again.After three weeks homeless.
My stomach was sick :mad:

pigeonbutler

caseyann wrote: »

I heard something on news about those who are in the 200 thousand pay bracket will get richer off this budget.Anyone know what they were talking about.
And lets face it someone who can afford to pay more tax will never share the pain.
I was watching prime time which had an a ex taxi driver on, now living in a hostel after taxi been robbed,getting to little from insurance to set himself up again.After three weeks homeless.
My stomach was sick :mad:

Yes, a quirk in the tax system that had existed was eliminated by this budget resulting in a one-off gain to self employed people (not employed people) earning over about 200k. Btw, people earning between 26k and 32k also find themselves better off so bear that in mind also.

You'll find that the guy earning 200k pays about 40-something % of his income in tax. Someone on 30k pays 16.8%

You may think people who have more should pay more but there is a limit to the logic of that. Should multi-millionaires pay 99% tax? Why would they bother continuing working if they had to?

Scarab80

ei.sdraob wrote: »

What I am trying to get at is that

its unlikely someone who is self employed would even consider paying themselves more than 50K income if they have a profit in company

i am not an accountant or tax adviser but claiming so much income is an extremely expensive and stupid way of tapping into the money your company made

Not all self employed have the benefit of corporate shelter, solicitors, accountants etc are forced to pay income tax on all of their profit for the year regardless of how much is retained in the business.

The most widely used way to mitigate this tax liability is through pension funding, however with the changes to pension relief in the budget the benefits from USC will be more than taken account of.