Would this economic model work

bogwalrus

I am not even sure if it is an economic model but it is something that has been on my mind recently.

Basically I really don't know where my tax money is going and what it pays for.

So I was wondering if it would be a sustainable model to not pay any VAT on products or services and just have one monthly tax bill that a citizen would pay based on their income.

In this case the government release how much it costs to run the country and what they need to invest in. They then break down the costs among the citizens based on incomes.

At least in this situation if I had to pay 20 euro a month I could see that 20% of that goes towards infrastructure, 30% health, another 20% investment and so on.

I just find If I knew what I was paying for and could see that the numbers add up then I would not have a problem paying tax.

SBWife

No. Higher rates of income tax have been proven to disincentivise work and encourage people to hide income - that's why most countries use a combination of income and consumption taxes to fund government.

I also wonder if the knowledge of how much of your tax goes to paying the interest on government debt would result in you not having a problem paying tax.

bogwalrus

fair enough.

It is obviously a very complex matter but I can imagine with technology and lots of payments made by card that it would be easier to clamp down on hidden incomes. I mean physical currency will eventually disappear yes?

H3llR4iser

SBWife wrote: »

No. Higher rates of income tax have been proven to disincentivise work and encourage people to hide income - that's why most countries use a combination of income and consumption taxes to fund government.

I also wonder if the knowledge of how much of your tax goes to paying the interest on government debt would result in you not having a problem paying tax.

Confirmed. Some countries have extremely high income taxes (NOT Ireland) and tax evasion is massive. One such example is Italy, with over 90 billion Euro/year lost to tax evasion.

hfallada

bogwalrus wrote: »

I am not even sure if it is an economic model but it is something that has been on my mind recently.

Basically I really don't know where my tax money is going and what it pays for.

So I was wondering if it would be a sustainable model to not pay any VAT on products or services and just have one monthly tax bill that a citizen would pay based on their income.

In this case the government release how much it costs to run the country and what they need to invest in. They then break down the costs among the citizens based on incomes.

At least in this situation if I had to pay 20 euro a month I could see that 20% of that goes towards infrastructure, 30% health, another 20% investment and so on.

I just find If I knew what I was paying for and could see that the numbers add up then I would not have a problem paying tax.

If you read the budget. All the spending is broken down. It's not a government secret. It hardly makes sense to abolish vat(one of the most important taxes) to show where some spending is ggoing

bogwalrus

Ok so I went and found the total expenditure in 2012. It was 55.8 billion. I want to calculate how much tax that represents each individual. I am not sure if my maths is correct but I divided 4.5 million people (4,500,000) into 55.8 billion (55,800,000,000) and got 12,400. That's a massive number for each individual (babies and all) is it not?

I am actually finding it really hard to understand why it costs so much to live in a country.

I take your point that the budget is broken down but I still think maybe giving the government loads of money through VAT means they just have more money to waste. A government that just has a monthly tax and has its broken down cant really waste money can it?

jimmycrackcorm

bogwalrus wrote:

I take your point that the budget is broken down but I still think maybe giving the government loads of money through VAT means they just have more money to waste. A government that just has a monthly tax and has its broken down cant really waste money can it?

What's a waste though? With your model, it would be very easy to argue that a lot of waste is actually in public sector wages and generous social welfare payments.

bogwalrus

jimmycrackcorm wrote: »

What's a waste though? With your model, it would be very easy to argue that a lot of waste is actually in public sector wages and generous social welfare payments.

I suppose what I am saying is that there is no point giving the government 1 billion a year when all they need is 500 million spent well.

I know our government probably could do with a lot more money to fix the problems but surely they should fix the way they spend the tax money first?

noodler

bogwalrus wrote: »

Ok so I went and found the total expenditure in 2012. It was 55.8 billion. I want to calculate how much tax that represents each individual. I am not sure if my maths is correct but I divided 4.5 million people (4,500,000) into 55.8 billion (55,800,000,000) and got 12,400. That's a massive number for each individual (babies and all) is it not?

I am actually finding it really hard to understand why it costs so much to live in a country.

I take your point that the budget is broken down but I still think maybe giving the government loads of money through VAT means they just have more money to waste. A government that just has a monthly tax and has its broken down cant really waste money can it?

Two things:

Total Gov spending is actually closer to 70bn.

The 55bn you refer to (Gross Voted Expenditure) refers to Departmental expenditure only. So far example, our national debt interest expenditure (which is about 8 or 9bn) is not included in that.

Also, publicpolicy.ie have a calculator where you enter your income - and it breaks down where your taxes go.

Check it out.

Geuze

bogwalrus wrote: »

I am not even sure if it is an economic model but it is something that has been on my mind recently.

Basically I really don't know where my tax money is going and what it pays for.

Here are the fiscal stats:

http://www.cso.ie/en/releasesandpublications/er/gfsa/governmentfinancestatisticsoctober2014/#.VI77HyusWSo

See table 4 for a breakdown of spending.

Geuze

Total Expenditure TE 70,804 = 71bn approx


Compensation of employees D1 18,652 = 18.6bn approx

Use of goods and services plus taxes payable P2 + D5 + D29 8,272

Depreciation (Consumption of fixed capital) P51c 3,071


Interest (excluding FISIM) D41 7,657 = 7.6bn approx

Subsidies D3 1,508

Social benefits D62 + D631 28,603 = 28.6bn approx
Social benefits in cash D62 24,008
Social benefits in kind (via market producers) D631 4,594

Other current transfers D7 2,704 2,520 2,429 2,452 2,717
Net non-life insurance premiums D71 91
Current international cooperation D74 467
Miscellaneous current transfers D75 643
VAT and GNI based EU budget contribution D76 1,516

Capital transfers D9 1,000
Investment grants D92 1,000
Other capital transfers D99 280

LeinsterDub

http://www.publicpolicy.ie/where-does-your-tax-go

Geuze

bogwalrus wrote: »

Ok so I went and found the total expenditure in 2012. It was 55.8 billion. I want to calculate how much tax that represents each individual. I am not sure if my maths is correct but I divided 4.5 million people (4,500,000) into 55.8 billion (55,800,000,000) and got 12,400. That's a massive number for each individual (babies and all) is it not?

I am actually finding it really hard to understand why it costs so much to live in a country.

Here's an anecdotal example of where your taxes go:

My parents earn 900 pw approx, just under 50k approx

They pay under 10% direct income taxes.

They receive:

1. two med cards
2. two travel passes
3. free TV licence
4. subsidised elec = 420 pa

In return for some of the lowest direct taxes in the world, they get generous benefits.

noodler

Geuze wrote: »

Here's an anecdotal example of where your taxes go:

My parents earn 900 pw approx, just under 50k approx

They pay under 10% direct income taxes.

They receive:

1. two med cards
2. two travel passes
3. free TV licence
4. subsidised elec = 420 pa

In return for some of the lowest direct taxes in the world, they get generous benefits.

You are including USC and PRSI in that?

Geuze

noodler wrote: »

You are including USC and PRSI in that?

YES.

SBWife

Geuze wrote: »

In return for some of the lowest direct taxes in the world, they get generous benefits.

Their direct taxes are very low because they earn very little money so all (outside of the individual allowances) of the income is taxed at 20%, I'm also guessing they might qualify for the reduced rate of USC. Ireland has a very progressive system so the highest rate kicks in at a pretty low level of income and the USC is also progressive. It doesn't take a crazy high income to be paying marginal taxes of above 50%.

When an individual earns €41,800 he or she will be paying taxes at a 52% marginal rate.

41% income tax
4% PRSI
7% USI

noodler

Geuze wrote: »

YES.

They are pensioners?

Geuze

2012 P21 info

Total gross taxable = 49k approx

Tax due = 2900 or 5.9%

USC due = 1523 or 3.1%

Total tax + USC = 9%.

No PRSI due as over 66.

9% direct taxes on 49k income. Such a generous nation.

Geuze

noodler wrote: »

They are pensioners?

They earn pension + wages + self-employment income.

noodler

Geuze wrote: »

2012 P21 info

Total gross taxable = 49k approx

Tax due = 2900 or 5.9%

USC due = 1523 or 3.1%

Total tax + USC = 9%.

No PRSI due as over 66.

9% direct taxes on 49k income. Such a generous nation.

There are numerous qualifications I would make to that.

They have paid PRSI their whole lives - now they get to take from the Social Insurance Fund rather than contribute as they are pensioners.

Ditto for the benefits they recieve.

Geuze

SBWife wrote: »

Their direct taxes are very low because they earn very little money so all (outside of the individual allowances) of the income is taxed at 20%, I'm also guessing they might qualify for the reduced rate of USC.

I wouldn't call 49k "very little money".

Small slice of income taxed at 41%.

Yes, correct, they don't pay USC at 7%.

Geuze

noodler wrote: »

There are numerous qualifications I would make to that.

They have paid PRSI their whole lives - now they get to take from the Social Insurance Fund rather than contribute as they are pensioners.

Ditto for the benefits they recieve.

One parent never paid full-rate PRSI.

The other parent paid PRSI for maybe ten years.

noodler

Geuze wrote: »

One parent never paid full-rate PRSI.

The other parent paid PRSI for maybe ten years.

How did your working parent avoid paying PRSI for 30 years?

(EDIT: If you have anymore revelations regarding our parents circumstances that you would be willing to share then its probably best you mention them now rather than have another half dozen posts with new information).

Geuze

noodler wrote: »

How did your working parent avoid paying PRSI for 30 years?

(EDIT: If you have anymore revelations regarding our parents circumstances that you would be willing to share then its probably best you mention them now rather than have another half dozen posts with new information).

Public servants, hired pre April 1995, do not pay full-rate PRSI.

They paid I think 0.9% PRSI, instead of 4% PRSI.

Obviously they do not get a State Pension as a result.

My mother worked for maybe 10-15 years, and paid full-rate PRSI for some/all of those years, I think.

SBWife

Two pensioners on a relatively low income do not prove the rule, for working people on decent wages the direct tax payments in Ireland are very high for a country that provides little services for these people.

noodler

Geuze wrote: »

Public servants, hired pre April 1995, do not pay full-rate PRSI.

They paid I think 0.9% PRSI, instead of 4% PRSI.

Obviously they do not get a State Pension as a result.

My mother worked for maybe 10-15 years, and paid full-rate PRSI for some/all of those years, I think.

In fairness, those who did (post-1995) in the Public Sector recieved a compensating pay increase.