Income tax, PRSI, USC

Idbatterim

Hey, so I am of the opinion that to be earning a meagre 32,800 and paying 52c in the euro or 55c if self employed is outrageous and immoral, was watching the front line last night, think it was an episode from Monday and even Pat Kenny was saying this and making comparisons with the uk and germany, where I believe even their top rates are less and come in at over £100,000 and nearly €250,000 respectively.

The question is often asked of what is "rich" and "wealthy" well surely this is anyone earning over E32,800 if single, as to be taking that amount, you would want to be.

Mr Noonan (who was being interviewed on Frontline) also agrees, and says thats why they didnt hike the rates (whatever about the thresholds) and says ideally he would like to lower the upper rate, although this is off the agenda for the time being unfortunately...

In my line of work and in some other semi related lines, there are many people who I know of first hand, who will not take on any work if it brings them over the 32,800 or 40 odd k if they are married.

Opinions?

Cookie_Monster

while you may be paying 52c over that level by the time you take into account all the credits and whatnot the total tax amount drops down considerably, so a person on 40k for example pays a total tax, USC and PAYE of 24.8% (http://www.deloitte.ie/tc/Default.aspx)

On 32,800 only 18.8% is paid. In both cases the actual rate is well below the headline rates of 20% or 41% plus USC and PAYE so in reality it's nowhere near as bad as first made out.

The lower rate needs to be upped (via removal of tax credits) to broaden the base and the higher rate needs to be cut. High earners should not be overly burdened just for the sake of it and everyone should pay their share.

hfallada

Tax rates in Germany are much much higher at top rates. Plus church tax of 10% is put on your income which you have to pay if you want to get married or have a funeral in a catholic church / protestant church.

In the uk you pay income tax at £8,900. Like Germany has a lot of tax bands. Half of all income earners in Ireland pay no income tax in 2010. That might have changed since the USC.

However unless welfare is cut and income tax is put on low income earners there is little incentive to work. One thing thats to be addresses is the fact oap have a tax credits for being over 70. Why??? They need to be abolished. They're is no reason why oap should pay less tax than a young person who needs to pay for their child, housing, etc.

Geuze

sOLUTION:

Reduce max MTR to 50%.

Increase ATR.

How?

Abolish age tax credits for people aged 65+.

Abolish income tax exemptions for people aged 65+

Abolish DIRT exemption.


Tax

Merger USC back into tax.

Four rates: 20, 30, 40, 50.

50% on income over 100k.

NB: this means a lower top MTR than now, as 52/55 drops to 50.

The crazy situation that people on 33k face a MTR of 52% to be gone forever.



PRSI

Abolish PRSI exemption - more workers to pay PRSI.
Re-introduce small PRSI-free allowance of 100 pw, to ease cost on low earners.
Reintroduce PRSI ceiling, like all other countries have. Say 100k.
Double PRSI from 4% to 8%, more in line with other countries and to fund the SIF.



Actual effective MTR:

0% on initial income
8% PRSI kicks in at 100 pw.
Tax at 20% starts at 300pw, MTR is 28%.

Then MTR steps up to 38, then 48, then at 100k PRSI stops, and MTR is 50%

Barracuda1

Idbatterim wrote: »

Hey, so I am of the opinion that to be earning a meagre 32,800 and paying 52c in the euro or 55c if self employed is outrageous and immoral, was watching the front line last night, think it was an episode from Monday and even Pat Kenny was saying this and making comparisons with the uk and germany, where I believe even their top rates are less and come in at over £100,000 and nearly €250,000 respectively.

The question is often asked of what is "rich" and "wealthy" well surely this is anyone earning over E32,800 if single, as to be taking that amount, you would want to be.

Mr Noonan (who was being interviewed on Frontline) also agrees, and says thats why they didnt hike the rates (whatever about the thresholds) and says ideally he would like to lower the upper rate, although this is off the agenda for the time being unfortunately...

In my line of work and in some other semi related lines, there are many people who I know of first hand, who will not take on any work if it brings them over the 32,800 or 40 odd k if they are married.

Opinions?

Shift the Tax burden to property and merge the USC with PRSI so the government will have to borrow alot less to fund social welfare. In the UK national health is 11.75% for employees. I agree with PRSI starting at 100 p/w

Ogham

We are not that bad in Ireland as people try to make out. Especially for the lower paid .See the figures here that say deductions are 34% for someone earning 54k


http://www.moneyguideireland.com/personal-taxation-levels-in-ireland.html

monkeypants

Idbatterim wrote: »

even Pat Kenny was saying this

Don't use a man who makes over €500k a year working part time and steals from his neighbours as a compass.

Geuze

I know a couple on 50k approx, paying 5% income tax in 2010 and 2011.

Unbelieavably low, great country.

No wonder the fiscal deficit is huge!!!!!!!

Scortho

Geuze wrote: »

I know a couple on 50k approx, paying 5% income tax in 2010 and 2011.

Unbelieavably low, great country.

No wonder the fiscal deficit is huge!!!!!!!

How?
Can you put me in touch with there accountant???:D

StigmaMan

What about a major tax reform..? I will post a proposal in a new thread..

djpbarry

Idbatterim wrote: »

Hey, so I am of the opinion that to be earning a meagre 32,800 and paying 52c in the euro...

Eh? A single person on €32,800 per annum will lose about 18.8 cent in every Euro to deductions. For the purposes of comparison, someone in the UK on a similar income (about £27,200) will lose about 21.6 pence in every pound to deductions and then they have to pay council tax on top of that (average of about £1,400 per annum per household).

Riskymove

djpbarry wrote: »

Eh? A single person on €32,800 per annum will lose about 18.8 cent in every Euro to deductions.

the 52% figure quoted is I believe related to the marginal tax you pay on every €1 over a certain amount - in this case when you move into the higher tax bracket

so while its true you pay 52c in every €1 you earn over the €32,800 you are not paying 52% on all your income

A Scoundrel

Riskymove wrote: »

the 52% figure quoted is I believe related to the marginal tax you pay on every €1 over a certain amount - in this case when you move into the higher tax bracket

so while its true you pay 52c in every €1 you earn over the €32,800 you are not paying 52% on all your income

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland.

Of course, if you remove a chunk of your income for a private pension or whatever, that's your perogative.

But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

Cookie_Monster

A Scoundrel wrote: »

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland.

Of course, if you remove a chunk of your income for a private pension or whatever, that's your perogative.

But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

no, not in total but on any marginal income. It's a huge disincentive to do any extra work

Idbatterim

look I couldnt care less what way people spin it! Any income over 32,800 I do pay tax at 52%. My issue isnt with the lower rates, up to E32,800 people arent paying enough in my opinion, but once on the marginal rate, its insanity. I have people everyday turning down hours I offer them at E25 per hour, they can earn up to E32,800 per year and pay little in fairness, after that they get gouged, I'd do the same in their position...

In the Uk, you dont pay the highest rate until you hit E181,000 & even then its 45%.

https://www.gov.uk/income-tax-rates

sock puppet

Idbatterim wrote: »

In the Uk, you dont pay the highest rate until you hit E181,000 & even then its 45%.

https://www.gov.uk/income-tax-rates

Because no one in the UK has ever had to pay social insurance.

AlmightyCushion

sock puppet wrote: »

Because no one in the UK has ever had to pay social insurance.

Even with NI contributions it works out about the same as our marginal rate but it kicks in at £150,000 as opposed €33,000 here.

Idbatterim

Because no one in the UK has ever had to pay social insurance.

Right, so the above poster reckons marginal rate is roughly the same with social insurance, I have no reason to doubt that. so you can earn approximately 5.5 times more, before paying an extortionate rate. Your right, lets argue over a few percent, not the 5.5 x earnings multiple :rolleyes: I'm just so glad, that at a massive income of 33k that I am deemed so well off, that 52% of my income can be confiscated, for use on our excellent value Public Service, public procurement, world class welfare etc...

sock puppet

Idbatterim wrote: »

Right, so the above poster reckons marginal rate is roughly the same with social insurance, I have no reason to doubt that. so you can earn approximately 5.5 times more, before paying an extortionate rate. Your right, lets argue over a few percent, not the 5.5 x earnings multiple :rolleyes: I'm just so glad, that at a massive income of 33k that I am deemed so well off, that 52% of my income can be confiscated, for use on our excellent value Public Service, public procurement, world class welfare etc...

So what's the marginal rate of someone on £35,000 as opposed to say €40,000, including income tax, social insurance and employer's PRSI/NI?

Idbatterim

I just did a quick calculation on 80k sterling v the euro equivalen gross pay, take home pay is E57189 in Ireland and E64350 in Uk.

Earn £80,000 in 2013/2014 and you'll take home £53,363. This means £4,447 in your pocket a month.


Over the year you'll pay £21,822 income tax and £4,815 in National Insurance.

http://www.moneysavingexpert.com/tax-calculator/

Calculated Results
2014 2013
Total Income €96,500.00 €96,500.00
Your Income €96,500.00 €96,500.00
Loan BIK €0.00 €0.00
Vehicle BIK (1) €0.00 €0.00
Health Insurance BIK €0.00 €0.00
Qualifying Pension Deduction (€0.00) (€0.00)
Carer Allowance (€0.00) (€0.00)
Tax @ Lower Rate (20 %) €6,560.00 (20 %) €6,560.00
Tax @ Higher Rate (41 %) €26,117.00 (41 %) €26,117.00
Tax Credits (€3,300.00) (€3,300.00)
Net Tax (€29,377.00) (€29,377.00)
PRSI (€3,860.00) (€3,860.00)
Universal Social Charge (€6,074.00) (€6,074.00)
Annual Net Income €57,189.00 €57,189.00
Monthly Net Income €4,766.00 €4,766.00
Weekly Net Income €1,100.00 €1,100.00

K-9

AlmightyCushion wrote: »

Even with NI contributions it works out about the same as our marginal rate but it kicks in at £150,000 as opposed €33,000 here.

But National Insurnace was always paid on pretty low wages, we can't compare on that level.

sock puppet

I don't think you'll find anyone that thinks high earners pay low taxes through PAYE. Your contention seemed to be that the marginal rate kicked in too early.

But marginal tax rates are often like that. In the UK the effective marginal tax rate for low earners can be over 70%. It's similar in the US

Riskymove

A Scoundrel wrote: »

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland.

Of course, if you remove a chunk of your income for a private pension or whatever, that's your perogative.

But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

add PAYE, USC, PRSI and if on the top rate you get 52% for PAYE

I think self-employed pay 55%

Geuze

A Scoundrel wrote: »

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland.

Of course, if you remove a chunk of your income for a private pension or whatever, that's your perogative.

But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

Yes, effective or average tax rates are not 52%.

But marginal tax rates on extra income are 52% from 32,800 onwards for single people.

MTR are what stick in people's minds, and may (do?) influence their behaviour.

Pharaoh1

Geuze wrote: »

Yes, effective or average tax rates are not 52%.

But marginal tax rates on extra income are 52% from 32,800 onwards for single people.

MTR are what stick in people's minds, and may (do?) influence their behaviour.

Similarly many of the older generation will constantly remind us of the time in the 70's and 80's "when we paid sixty pence in the pound" as if sixty pence of every pound they earned went to the tax man.
Many genuinely believe that they did and refuse to be reminded of Tax Free allowance (TFA) which was replaced by the tax credit system.
I do agree that it was a penally high rate at the time.

Sheldons Brain

Firstly, there is no reason in this day and age why the tax system has to have these bands with big steps, an alternative which sees your marginal rate gradually increase should be used. Nowadays people could easily calculate their tax on a smartphone app even if the calculations are more complex.

Secondly, as noted above, low earners may have some savage marginal rates as benefits are withdrawn. These should be modelled and refined, and if this means something more complex see app, above.

Godge

Idbatterim wrote: »

I just did a quick calculation on 80k sterling v the euro equivalen gross pay, take home pay is E57189 in Ireland and E64350 in Uk.

Earn £80,000 in 2013/2014 and you'll take home £53,363. This means £4,447 in your pocket a month.


Over the year you'll pay £21,822 income tax and £4,815 in National Insurance.

http://www.moneysavingexpert.com/tax-calculator/

Calculated Results
2014 2013
Total Income €96,500.00 €96,500.00
Your Income €96,500.00 €96,500.00
Loan BIK €0.00 €0.00
Vehicle BIK (1) €0.00 €0.00
Health Insurance BIK €0.00 €0.00
Qualifying Pension Deduction (€0.00) (€0.00)
Carer Allowance (€0.00) (€0.00)
Tax @ Lower Rate (20 %) €6,560.00 (20 %) €6,560.00
Tax @ Higher Rate (41 %) €26,117.00 (41 %) €26,117.00
Tax Credits (€3,300.00) (€3,300.00)
Net Tax (€29,377.00) (€29,377.00)
PRSI (€3,860.00) (€3,860.00)
Universal Social Charge (€6,074.00) (€6,074.00)
Annual Net Income €57,189.00 €57,189.00
Monthly Net Income €4,766.00 €4,766.00
Weekly Net Income €1,100.00 €1,100.00

The difference between us and the UK is that we tax high earners more as shown in your example.

If you were to take an example of a person earning €20k, you will find that their take-home pay in Ireland is much higher than in the UK. However, we have to keep it that way because of the higher rates of social welfare in Ireland.

Essentially, higher earners - those above 35k in Ireland - pay more tax so that lower earners - those under 30k - pay less tax and so that social welfare recipients can get better benefits. The problem created is that the incentive to work is lowered.

Idbatterim

Essentially, higher earners - those above 35k in Ireland - pay more tax so that lower earners - those under 30k - pay less tax and so that social welfare recipients can get better benefits. The problem created is that the incentive to work is lowered.

Exactly I agree. My opinion is, that the "high earners" are bled dry to keep the rest of society here with a standard of living well above what you would get in other OECD countries...

jester77

Idbatterim wrote: »

Exactly I agree. My opinion is, that the "high earners" are bled dry to keep the rest of society here with a standard of living well above what you would get in other OECD countries...

Someone on 35k in Ireland is not being bled too dry in comparison to other countries. Germany was mentioned earlier, so to compare:

Taxable Income
€2,916.67

Tax
€346.83 v 497,50 €

Social
(€147.40 + €116.67) v 595,74 €

Take Home
€2,305.77 v 1.823,42 €

Godge

jester77 wrote: »

Someone on 35k in Ireland is not being bled too dry in comparison to other countries. Germany was mentioned earlier, so to compare:

Taxable Income
€2,916.67

Tax
€346.83 v 497,50 €

Social
(€147.40 + €116.67) v 595,74 €

Take Home
€2,305.77 v 1.823,42 €

Look at the difference at levels below that. Income tax kicks in early in most countries because it is a way to show that we are all citizens and that we all contribute as well as receive.

Ireland is different and has created a receiving culture.

Idbatterim

Someone on 35k in Ireland is not being bled too dry in comparison to other countries. Germany was mentioned earlier, so to compare:

No not on 35k they are not, I'm talking on those of say 60-80k... I'd like to know, often people on this type of money would start work from a young age and may not stop until they reach retirement age, i.e. they are contributing vast sums to the exchequer, I want to know what they get out of it, as opposed to someone who is on say minimum wage or somebody who has never worked at all... Obviously some will pay far more in than they ever get out, but I believe that if they are made redundant or when they retire, their unemployment benefit or pension should be based on what they have paid in...

Look at the difference at levels below that. Income tax kicks in early in most countries because it is a way to show that we are all citizens and that we all contribute as well as receive.

Ireland is different and has created a receiving culture.

Absolutely, I agree. My dad is German, so maybe thats why I have a problem with the system here, when I'm comparing the Irish and the German one!

AlexisM

Godge wrote: »

Essentially, higher earners - those above 35k in Ireland - pay more tax so that lower earners - those under 30k - pay less tax and so that social welfare recipients can get better benefits. The problem created is that the incentive to work is lowered.

Very succinctly put and depressingly true...

It's very hard to right the situation though - any measures to do so would, by default, target/penalise/attack/crucify lower earners more than higher earners - and that's very difficult for any government to do. But it's not really fair to have austerity measures be a one-way street for higher earners - first to be targetted AND targetted the most - but politically difficult to reverse the process.

Another big issue which Germany seems to deal with fairly is a cap on social insurance contributions so there is at least some link between contributions and benefits. Here PRSI is 4% whether you earn 25K, 75K or 250K - but benefits are pretty much the same. You could have someone contributing 4% of a 1M pa salary for 10 years getting a lower pension than someone contributing 4% of a 25K salary for 20 years.

Idbatterim

Britain also has a large elderly population a significant military, both of which would cost serious money. We have neither of these.

AlexisM

A Scoundrel wrote: »

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland....
...
But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

Depends on how you (and your employer) view pay. I have a US employer - who is fine with paying employers PRSI on my salary. However, if he wants to give a $1,000 bonus to all staff, he wants to give me $1,000, not $1,000 + 10.75% employers PRSI - so my bonus gets grossed down to $903 - and THEN I pay marginal 52% - so out of the original $1,000 intended for me, I get $433 - a marginal tax rate of almost 57%. This could, in theory, gradually creep up (in an extremely good year...), to a full 52% of pay.

So out of a $1,000 bonus, my US colleagues keep $600-$700 (depends what state they are in) and I get to keep $433. I think 57% effective marginal rate is just too high.

And while I'm here and ranting, a connected gripe is that all this extra employee and employer's PRSI brings absolutely no extra benefit to me or my employer. Benefits are capped - contributions should be too.

Idbatterim

And while I'm here and ranting, a connected gripe is that all this extra employee and employer's PRSI brings absolutely no extra benefit to me or my employer. Benefits are capped - contributions should be too.

But doesnt the contributory pensions, pay a whopping E20 more per week than the non contributory pension here?.... Suddenly it makes it all seem so worthwhile... :rolleyes:

srsly78

Also note the non-contributory pension is means tested, so can't be topped up.

Cool Mo D

Cookie_Monster wrote: »

no, not in total but on any marginal income. It's a huge disincentive to do any extra work

I would like to point out that there is very, very little evidence for the idea that raising marginal tax rates makes people change their work habits all that much. You can make an argument that it's unfair for high earners to be taking the brunt of the tax increases, but the evidence says that even when people do work less when they are taxed at higher marginal rates, which doesn't always happen, the difference it makes is tiny.

Here is a relevant study: http://www.nber.org/digest/jul12/w17860.html

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

AlexisM

Cool Mo D wrote: »

Here is a relevant study:

It's from the US spanning the inter-war years which would include the depression-era - ie North America 1920s and 1930s - how far away from modern times and working conditions would you have to go to make a study not relevant?

Cool Mo D wrote: »

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

I couldn't access any more than the 1st page (rest is behind a paywall) - this is certainly more up to date at a still-not-very-recent 1957...

So an 80 year old study and a 60 year old study? No possibility that work practices, social issues etc. might have changed behaviours since then? Not to mention that I would imagine in depression-era America, even a 90% tax rate would mean getting 10% of something - which might at least mean food on the table for your family. Are there really no studies you can find from more recent times?

For proof of the opposite view, you just have to look to the UK where the increase in the top rate from 45 to 50 didn't bring in anywhere near as much as expected because people just wouldn't put up with those rates - the rate was changed back to 45 last April (2013).

zielarz

We've got more recent data from UK. Left-wingers moaned that it will reduce tax revenues... the opposite happened.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10074285/Treasury-raises-extra-1.3bn-from-income-tax-in-first-month-of-45p-rate.html

srsly78

zielarz wrote: »

We've got more recent data from UK. Left-wingers moaned that it will reduce tax revenues... the opposite happened.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10074285/Treasury-raises-extra-1.3bn-from-income-tax-in-first-month-of-45p-rate.html

Less is more: http://en.wikipedia.org/wiki/Laffer_curve

Frank Lee Midere

Cool Mo D wrote: »

I would like to point out that there is very, very little evidence for the idea that raising marginal tax rates makes people change their work habits all that much. You can make an argument that it's unfair for high earners to be taking the brunt of the tax increases, but the evidence says that even when people do work less when they are taxed at higher marginal rates, which doesn't always happen, the difference it makes is tiny.

Here is a relevant study: http://www.nber.org/digest/jul12/w17860.html

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

That's because workers in the PAYE sector have to work and have to pay taxes. Only a fool with a bad accountant would pay 52% of his income if he didn't have to.

And wages are not the only income. Leftists - well modern leftists - persist in this nonsense. If my PAYE deductions got too high I would contract. Higher executives would pay themselves in stocks or options and take the lighter tax on capital gains, the self employed would take more cash options even if that is more risky these days.

You can't actually go after the real rich with these taxes because the real rich don't earn wages.

Cool Mo D

AlexisM wrote: »

It's from the US spanning the inter-war years which would include the depression-era - ie North America 1920s and 1930s - how far away from modern times and working conditions would you have to go to make a study not relevant?
I couldn't access any more than the 1st page (rest is behind a paywall) - this is certainly more up to date at a still-not-very-recent 1957...

So an 80 year old study and a 60 year old study? No possibility that work practices, social issues etc. might have changed behaviours since then? Not to mention that I would imagine in depression-era America, even a 90% tax rate would mean getting 10% of something - which might at least mean food on the table for your family. Are there really no studies you can find from more recent times?

For proof of the opposite view, you just have to look to the UK where the increase in the top rate from 45 to 50 didn't bring in anywhere near as much as expected because people just wouldn't put up with those rates - the rate was changed back to 45 last April (2013).

The reason that those studies are particularly valid is because they were done at times when marginal tax rates were fluctuating rapidly before and after the second world war. Therefore, if people did change their work habits, this would have been the ideal time to spot it. The second study was specifically based on workers who had the freedom to change their working hours in response to tax conditions - can you explain exactly why they are not still relevant?

In the 1920's and 1930's the labour market was, if anything, more casual and flexible than today. Hours were a lot less fixed than today, so, if anything you should see a bigger effect drop in working hours than you would today.

You have also provided absolutely no evidence that the rise in the marginal income tax rate in the UK from 45% to 50% affected the amount of hours worked. I can find a lot of people CLAIMING that it reduced the number of hours worked, but 0 actual data. And as for the Laffer curve - there is recent work showing that you can push tax rates up to about 65% before you end up on the wrong side of the curve: http://www.sciencedirect.com/science/article/pii/0304393295012249

Frank Lee Midere

Cool Mo D wrote: »

The reason that those studies are particularly valid is because they were done at times when marginal tax rates were fluctuating rapidly before and after the second world war. Therefore, if people did change their work habits, this would have been the ideal time to spot it. The second study was specifically based on workers who had the freedom to change their working hours in response to tax conditions - can you explain exactly why they are not still relevant?

In the 1920's and 1930's the labour market was, if anything, more casual and flexible than today. Hours were a lot less fixed than today, so, if anything you should see a bigger effect drop in working hours than you would today.

You have also provided absolutely no evidence that the rise in the marginal income tax rate in the UK from 45% to 50% affected the amount of hours worked. I can find a lot of people CLAIMING that it reduced the number of hours worked, but 0 actual data. And as for the Laffer curve - there is recent work showing that you can push tax rates up to about 65% before you end up on the wrong side of the curve: http://www.sciencedirect.com/science/article/pii/0304393295012249

But the recent UK reality showed the opposite - that the 50% tax band didn't bring in as much as it should have were it paid universally. So people stopped working or stopped getting paid as wages. You deliberately miss this.

But this is largely off topic. Seizing 52% of the PAYE workers average salary to pay for perks and pensions he won't get is immoral.

Cool Mo D

Frank Lee Midere wrote: »

But the recent UK reality showed the opposite - that the 50% tax band didn't bring in as much as it should have were it paid universally. So people stopped working or stopped getting paid as wages. You deliberately miss this.

No, it didn't show this. What happened was that some commentators said that the 50% rate did not bring in as much revenue as it should. This was entirely based on their say-so and not actual economic data. Then, when the rate was reduced to 45%, the amount of income tax collected increased. However, this does not mean that the 50% rate was holding back the economy - in fact the economy was starting to recover, so the government had the fiscal space to cut tax, to reward their middle class political base.

My basic point is that economic journalists and commentators like to claim that cutting taxes is good for productivity. This conveniently helps them to sell papers to people who stand to benefit from these tax cuts. Now, it may or may not be the case that cutting taxes does help productivity, but when academic economists try to study the issue, the effects are pretty small.

Part of the reason that economics has such a poor reputation is people confusing media cheerleaders, for the property market, for tax cuts, for whatever flavour of the month, with actual economists trying to make sense of how people really respond to complex economic conditions. I would like to see people argue with facts, rather than their gut feel of what reality should be like.

sock puppet

The laffer curve has never struck me as particularly applicable to policy making. All it says is that there is at least one rate at which tax take is maximised. What does that actually mean to legislators though? Even if you're at a point where you've increased taxes and revenue has fallen it could be do to other factors and vice versa. It could also be that you've found a local maxima on the laffer curve but not the global maximum. What if the laffer curve shifts? What happens, if as Idbatterim suggests, if we keep average tax rates the same but reduce the marginal rate? Im sure there's been research into all those areas but it rather ruins the simplicity of the laffer curve.

zielarz

Cool Mo D, you're making logical error. I am better off when I pay less tax, not when I pay more. Everybody else is better off when they pay less tax. I don't need proofs for that. I know it because it's just common sense.

barneystinson

zielarz wrote: »

Cool Mo D, you're making logical error. I am better off when I pay less tax, not when I pay more. Everybody else is better off when they pay less tax. I don't need proofs for that. I know it because it's just common sense.

I think you're the one making the logical error there! Cave men didnt pay any taxes, were they better off than us?

The logical conclusion of that would result in no tax being paid = no tax being collected = no State/public sector = no infrastructure (roads, hospitals, police, schools, courts).

Frank Lee Midere

Cool Mo D wrote: »

No, it didn't show this. What happened was that some commentators said that the 50% rate did not bring in as much revenue as it should. This was entirely based on their say-so and not actual economic data. Then, when the rate was reduced to 45%, the amount of income tax collected increased. However, this does not mean that the 50% rate was holding back the economy - in fact the economy was starting to recover, so the government had the fiscal space to cut tax, to reward their middle class political base.

My basic point is that economic journalists and commentators like to claim that cutting taxes is good for productivity. This conveniently helps them to sell papers to people who stand to benefit from these tax cuts. Now, it may or may not be the case that cutting taxes does help productivity, but when academic economists try to study the issue, the effects are pretty small.

Part of the reason that economics has such a poor reputation is people confusing media cheerleaders, for the property market, for tax cuts, for whatever flavour of the month, with actual economists trying to make sense of how people really respond to complex economic conditions. I would like to see people argue with facts, rather than their gut feel of what reality should be like.

But I did. Firstly I agree with your problems with newspaper economists but no economist actually follows real science.

Back to the 45% - 50% tax rise. It should be perfectly simple to work out what that should have brought in if nobody could avoid it

i.e there are 100,000 PAYE workers earning £1B cumulatively above 150k. We decide to now tax that £1B at 5% more so we should see extra revenues of 50M, all things being equal. If we don't people are working less or hiding their income somehow, or moving out of the PAYE sector in part or full. Which might be a matter of how they take bonuses.

In any case a 50% tax on the top 1% is hardly equivalent of 52% on the top 40%.

Some taxes might generate economic activity depending on how the tax is spent, due to multiplier effects, like taxes on wealth or land. Taxes on workers in ordinary roles is probably counter productive.

Frank Lee Midere

sock puppet wrote: »

The laffer curve has never struck me as particularly applicable to policy making. All it says is that there is at least one rate at which tax take is maximised. What does that actually mean to legislators though? Even if you're at a point where you've increased taxes and revenue has fallen it could be do to other factors and vice versa. It could also be that you've found a local maxima on the laffer curve but not the global maximum. What if the laffer curve shifts? What happens, if as Idbatterim suggests, if we keep average tax rates the same but reduce the marginal rate? Im sure there's been research into all those areas but it rather ruins the simplicity of the laffer curve.

The laffer curve is always about marginal rates.

sock puppet

Frank Lee Midere wrote: »

But I did. Firstly I agree with your problems with newspaper economists but no economist actually follows real science.

Back to the 45% - 50% tax rise. It should be perfectly simple to work out what that should have brought in if nobody could avoid it

i.e there are 100,000 PAYE workers earning £1B cumulatively above 150k. We decide to now tax that £1B at 5% more so we should see extra revenues of 50M, all things being equal. If we don't people are working less or hiding their income somehow, or moving out of the PAYE sector in part or full. Which might be a matter of how they take bonuses.

In any case a 50% tax on the top 1% is hardly equivalent of 52% on the top 40%.

Some taxes might generate economic activity depending on how the tax is spent, due to multiplier effects, like taxes on wealth or land. Taxes on workers in ordinary roles is probably counter productive.

As you say replication or controled experiments are impossible in economics, so you can never be certain of the effect of any specific policy. There might be evidence that it produces a certain outcome sure, but you can never "prove" or "show" anything. And because tax revenues are dependant on many variables which constantly change, and which also may interact or be correlated, it can be difficult to determine what is causing them to change.

Frank Lee Midere wrote: »

The laffer curve is always about marginal rates.

Open to correction but that's the first I've ever heard that.

zielarz

barneystinson wrote: »

I think you're the one making the logical error there! Cave men didnt pay any taxes, were they better off than us?

The logical conclusion of that would result in no tax being paid = no tax being collected = no State/public sector = no infrastructure (roads, hospitals, police, schools, courts).

This isn't a good argument. Are you saying that cave men didn't have proper infrastucture because he didn't pay any taxes?

This thread is about high marginal tax rates, not about abolishing taxation. I'm in favour of lowering labour taxes, they're the highest. For some reason society doesn't value hard work.