Increasing the tax on high earners and lowering tax on lower wages?

lightspeed

Hi im currently in my first year of a business degree and we have been studying economics which was a subject i disliked at firs but now im finding it quite interesting. Just want to hear some opinions on a theory of mine for economic growth. What if the government increased the higher tax rate of 41% to 49% and lowered the lower wage jobs by 8%? This may sound ridiculous and it may well be but my theory on it is that this would incentive people to spend much more money which would produce a growth in GDP , more jobs and plenty of jobs and with higher earners making up for the 8% difference tax revenue to the government expediture would remain the same. As from what i hear with the higher taxes and universal social charge it is highly unlikely that GDP will grow this year which means more jobs will be lost this year and fewer created and therefore more people signing on the dole and emigrating . Those that join the dole will contribute to soaking up government revenue resulting in a further increase in further budgets to come. If gdp isnt going to grow i fail to see how the economy can recover? are the tax increases of the last budget not just buying us time that will ultimately result in higher taxes down the road?

faceman

How is increasing the higher rate of tax going to encourage spending by those taxed in that bracket?

lightspeed

the fact that they are already earning good money in a market where prices have fallen dramatically in many areas like electronics good for one or for rent and property. Isnt it the case that gdp wont grow this year cause the more less well off people are going to be even poorer and so wont spend as much? If people at the higher wage bracket are already at high wages it seems unlikely a further 8% is going to change how much they spend either way.

the_syco

Doesn't it mean that those paid less will earn more?

SBWife

But what about the disincentive to work for higher earners. The higher earner marginal rate of taxation is already above 50% (41% income tax 7% USC 4% PRSI) increasing it further could encourage higher earners not to work so much.

Assuming that higher earners earn more because they are more productive (eg: they are better creators of value) reducing the amount they work would reduce economic growth overall.

lightspeed

poverty is always an incentive to continue working. Yes higher earners will continue to work cause they are still on high wages hence the word "higher". name me a job where someone gets paid more for being more productive? unless you mean in a sales area people get paid more commission but generaly do people not get paid more cause they are more qualified and experianced than say they produce more. It not like if you on low wages say in a supermarket and the other work beside is faster and then suddenly the boss says ill be generous and put the me more productive worker on more money. Of course people get promoted to managerial positions and then earn more but surely thats mainly based on experiance to the relevant role that a huge difference in production output.you make its sound like the wealthy are in the same situation as the poor when they are as always the opposite of each other. poorer people cant afford to treat themselves and go out spending so they are saving more right now, whereas wealthy people that were wealthy before tax increases are still wealthy to the point that they have not been forced to change their lifestyle. if the higher earners dont feel any incentive to work they can quit work and join the dole and see if its an easy adjustment and surely in this market that isnt like to happen and even if it did they would soon be replaced from what ive heard from just word of mouth is that ireland still has amongst the lowest tax systems in the EU.

lightspeed

the_syco wrote: »

Doesn't it mean that those paid less will earn more?

you figured that one out then did ya. yes of course thats the idea then they will spend more and less jobs will be lost and more created and so ultimately the rich and the middle class will get richer. if the economy isnt going to grow this year which it wont according to many economists due to the latest tax hikes then many more people will be on the dole and defaulting on their mortages and bank loans. Do you really think that the rich as well as the middle class and poor wont be hit? surely everybody will be paying more taxes at the end of next years budget and will just continue to spend even less and the pattern of economic destruction will continue further and foreign investment will also decrease as more and more qualified workers emmigrate..It would seem that those on the higher wage scale protesting any tax increases are of the same breed as the students and the pensioners. if i recall correctly back in 2007 i think it was when the fianna fail government wanted to take away the medical card from pensioners earning €600 a week or more and what happened outrage so it was scraped just like cuts they had proposed back then to cut college tuition fees and what did that do? was it any kind of victory when the government backed down with their tail between their legs on such cuts?
NO it brought us further down the hole and then we sold the country to the IMF , perhaps if we had have made them difficult decisions back then we would be in this mess but the fact is we are and as i asked already isnt the increase in tax not just buying false hope and time to lead us to an even bigger black hole?

faceman

Your theory does not consider the following points:

* impact to high earners
* high earners current spend is not in line with low earners spend
* Fuel, mortgage, heating and electricity costs have increased, not decreased and that trent is set to continue
* higher earners already contribute substantially more tax than lower incomes
* over taxing higher earners incentivises higher skilled people to emmigrate to to under achieve.
* you decrease productivity for lower earners as the incentive to work harder to better your carer is eroded by the higher tax at a higher income
* the workforce as a result "dumbs down" resulting in less FDI.
* You cant tax your way out of a recession

the_syco

the_syco wrote: »

Doesn't it mean that those paid less will earn more?

Doesn't it mean that those paid less will earn more than those who get paid more?

After a while, people earning a high sum, will come out with a low sum.

SBWife

lightspeed wrote: »

poverty is always an incentive to continue working. Yes higher earners will continue to work cause they are still on high wages hence the word "higher". name me a job where someone gets paid more for being more productive?

A software engineer is arguably more productive then a sales assistant at the local Spar as they produce something of higher value. They are also paid better. I could list hundreds more examples but I'm sure you get the idea.

Many words have slightly more specific meanings when used in an economic context - you'd do well to try and get a grasp of this if you want to be able to argue for your "theory".