The Case For Flat Tax In Ireland

FreudianSlippers

I’m setting out as best I can from the evidence and documentation I can find, the case for doing a few things:
1) Introducing a flat tax in Ireland;
2) Scrapping the department of social welfare (save a few funds which can be distributed elsewhere);
3) Introducing a universal basic income.

I’d like this to be the start of a discussion, so if you have ideas on how this would work / not work or ways to make it better, etc. chime in!
I’m showing my work as I go, so here it is:

• According to the CSO in 2014 (http://www.cso.ie/en/releasesandpublications/er/nie/nationalincomeandexpenditureannualresults2014/), the income tax intake (including USC, Health and Income levies) was €17.915bn; LPT was €447m; pension fund levy was €743m. Total this is €19.1bn worth of tax intake.

• According to NERI (http://www.nerinstitute.net/download/pdf/neri_research_inbrief_total_taxes_ireland_august_2014.pdf) on average Irish households pay 13.6% of gross income in direct taxes (income and social insurance) which I believe includes USC – this means the gross taxable income in Ireland is approximately €131.7bn per annum.

• According to the PublicPolicy.ie based on the DSP annual reports (http://www.publicpolicy.ie/a-survey-of-the-benefit-system-in-ireland/) in 2013 total Social Welfare expenditure was €20.284bn. (I would advocate keeping the following: Disability allowance cost €1.141bn, illness benefit cost €648.9m, free travel cost €75.5m, carer’s allowance cost €554.8m, back to education allowance cost €186.9m = total €2.42bn. But that’ll come into play later).

• Total number of people unemployed is 211k with 1.964m in employment (http://www.tradingeconomics.com/ireland/indicators). If we take the full total number of people who were in receipt of some form of state pension (https://www.welfare.ie/en/downloads/Social-Stats-AR-2014-SectionB.pdf) you have approx 563k. Rounding up, let’s say that means you have about 775k people earning no money who are of either working age or retired.

• As an indicator, let’s look at social welfare payments and pension entitlements as they stand at the higher rates (https://www.welfare.ie/en/downloads/budfact14.pdf): the highest rate of pension is €240.30/week or about €12,495/year; JSA/JSB is €188/week or €9,776/year. Given minimum wage is about €17,589/year, let’s consider that everyone should be entitled to a universal basic income of €12,000/year (it’s a reduction for the highest rate of pensioners, but if you stick with the theory they would have more to invest in private pensions).

• In order to implement a universal basic income of €12k per annum for all 775,000 people who are not earning any money, the state would need to bring in €9.3bn + our €2.42bn carried over from scrapping almost all the DSP for a total of €11.72bn in universal basic income and social welfare. That’s a saving of almost €8.57bn a year. For the sake of argument, let’s not deduct this from the income tax intake requirement and presume it could be redistributed elsewhere (water, health, infrastructure, etc.) and consider how we could achieve this from a flat tax with a universal basic income.

• We need to get €19.1bn from 1.964m people. Let’s also say that if you make less than €20k per annum you pay no income tax – looking at the 2015 income distribution statistics (https://www.kildarestreet.com/wrans/?id=2014-12-04a.186) you have 805,830 people earning under €20k/year. So that means we now need to get €19.1bn from 1.158m people or approx €16,494 per person. Using the same statistics above, let’s also presume that each group under €20k is making their full allotment (i.e. everyone in the 0-9k bracket makes 9k, 9-12 makes 12, 12-15 makes 15 and 15-20 makes 20), we remove about €10.61bn gross from the taxation net. Then, using our gross taxable income of €131.7bn - €10.61bn = €121.09bn; of which €19.1bn is about 15.77%.

Unless I’m totally off on the figures here (and please correct me if I am) we could scrap DSW tomorrow and introduce a flat tax of 16% and a universal basic income of €12,000/year and still have €8.57bn/year extra! This is before we even factor in that the closer you get over €12,000/year to earning the €20,000/year tax cut-off, you are less of a burden on the state.

Therefore here’s what I advocate:
20% flat tax on anyone making over €20,000/year; universal basic income over €12,000 for every person of working age and meeting residency requirements.
That should bring in €24.21bn (an additional €5.11bn a year into the exchequer) in income taxes. Keep in mind the €19.1bn also included LPT, USC and pension levy.
Scrapping the DSW minus the specific services above saves €17.864bn/year. Universal basic income of €12,000/year costs €9.3bn/year. This is a net additional €8.564bn a year into the exchequer.
This is a total of €13.674 extra into the exchequer a year – with a more just and equitable universal basic income for all people.

Under this system I propose income would look as follows:
You make €0-€12k – You get €12k
You make €12k-€19.9k – You get what you earn at 0% tax
You make €20k – You get €16k (This is a problem zone and I would appreciate suggestions on how to make this equitable)
You make €30k – You get €24k
You make €40k – You get €32k
You make €50k – You get €40k
You make €60k – You get €48k
You make €70k – You get €56k
You make €80k – You get €64k
You make €90k – You get €72k
You make €100k – You get €80k
etc.


Comments / critique / discussion?

BOHtox

Forgetting about your system, and I always love reading about different systems regardless of whether I agree with them or not, the way you could fix the tax problem is by only taxing income earned above €20,000.. If you earn 19k you don't pay any tax. If you earn 21k, you pay 20% on the 1k you earn over 20k so you pay €200. 100k you pay 20% of the 80k you earn over 20k so you can €16000 etc

FreudianSlippers

BOHtox wrote: »

Forgetting about your system, and I always love reading about different systems regardless of whether I agree with them or not,

I'd be interested to hear why people would disagree with this model - it seems equitable?

the way you could fix the tax problem is by only taxing income earned above €20,000.. If you earn 19k you don't pay any tax. If you earn 21k, you pay 20% on the 1k you earn over 20k so you pay €200. 100k you pay 20% of the 80k you earn over 20k so you can €16000 etc

The problem is then you remove a sizeable chunk of money from the taxation pool as well as making the tax itself less equitable.

I think the way to fix it is to also scrap the universal basic income in favour of a tax exemption limit (as you suggest) with a negative income tax, which should also save the exchequer money (although it's such a complicated mathematical formula for me that I'll leave it to someone a bit more numerically inclined to work it out).

• Raise the flat income tax to 40%
• Tax exemption is €30,000
• The subsidy rate is 40% (equal to flat tax rate)

Therefore:

• A person making €0 would receive €12,000
• A person making €10,000 would receive €8,000
• A person making €20,000 would receive €4,000
• A person making €30,000 would receive €0 and pay €0 tax
• A person making €40,000 would pay €4,000 tax
• A person making €50,000 would pay €8,000 tax
• A person making €60,000 would pay €12,000 tax
• A person making €70,000 would pay €16,000 tax
• A person making €80,000 would pay €20,000 tax
• A person making €90,000 would pay €24,000 tax
• A person making €100,000 would pay €28,000 tax

etc.

That should bring in slightly more tax into the exchequer (it's also slightly more progressive) and it ensures the minimum income of €12,000/year for those making no money.

mikep

I like the plan, although my head hurts if I think about tax etc too much..

Has this been tried anywhere else to your knowledge?

Aren't Renua toying with this idea too??

murphaph

I love the idea of flat taxes. I think that most states avoid them because they are far too transparent. The government can't easily play a smoke and mirrors game of decreasing income tax while increasing USC or whatever. They love this opaqueness come budget time.

In theory you save a heap of money on the administration of the tax system too as the complicated structures are simply not there.

One thing I'm not sure of...how would you handle someone getting a relief for being blind or having a disabled child? Could the flat tax handle this case equitably? (I think 2 families on exactly the same income where one family has the financial burden of a severely disabled child has to be taken into consideration by the tax system. It can't be simply a case of saying "tough luck" to them.....perhaps the flat tax could be amended to subtract a percentage point from the rate payable for a given "relief")

FreudianSlippers

murphaph wrote: »

I love the idea of flat taxes. I think that most states avoid them because they are far too transparent. The government can't easily play a smoke and mirrors game of decreasing income tax while increasing USC or whatever. They love this opaqueness come budget time.

In theory you save a heap of money on the administration of the tax system too as the complicated structures are simply not there.

One thing I'm not sure of...how would you handle someone getting a relief for being blind or having a disabled child? Could the flat tax handle this case equitably? (I think 2 families on exactly the same income where one family has the financial burden of a severely disabled child has to be taken into consideration by the tax system. It can't be simply a case of saying "tough luck" to them.....perhaps the flat tax could be amended to subtract a percentage point from the rate payable for a given "relief")

That is one of the issues I considered when reviewing the figures – you’ll see I calculated from the available figures that keeping disability allowance (€1.141bn), illness benefit (€648.9m), free travel (€75.5m), carer’s allowance (€554.8m) and back to education allowance (€186.9m) would cost a total of €2.42bn which I included originally in the “universal basic income” costings. Obviously since I have concluded UBI won’t work and have instead opted for a negative income tax, we’d have to figure out a way to distribute these funds – I would like to avoid ‘bloat’ from having departments like DSW, so perhaps the way to do it is to have the HSE issue a tax credit certificate for people who require one of these allowances (free travel is fairly easy since it comes in at a set age) and they can apply the credit to reduce their tax burden or increase their negative tax benefit.

FreudianSlippers

mikep wrote: »

I like the plan, although my head hurts if I think about tax etc too much..

Has this been tried anywhere else to your knowledge?

Aren't Renua toying with this idea too??

I just did a check and there are a handful of countries that do. I'm not sure how serious Renua are about the flat tax idea, but I think the more people understood it and that the vast majority would benefit from it, I think more parties/people would be advocating it. It's a win for everyone in a country this size as far as I can see?

andrew

Is it definitely more progressive? A person on €100,000 at the moment pays about €40,000 in tax, as opposed to €28,000 here. A person earning €50,000 pays €15,000, but €8,000 here. And if almost everyone is paying less tax, then it just seems weird that we'd end up saving money. Where exactly is the saving coming from?

Also, and relatedly, if you scrap the dept. of Social Welfare (save for a few things), I think it's worth being more explicit about what things aren't covered under your scheme. Is anyone at all made worse off? By how much?

djpbarry

FreudianSlippers wrote: »

Let’s also say that if you make less than €20k per annum you pay no income tax…

The problem with that is you’ll have someone earning €19,999 per annum tax –free, but someone earning €20,000 per annum taking home only €16,000.

djpbarry

murphaph wrote: »

I love the idea of flat taxes. I think that most states avoid them because they are far too transparent.

I’m not sure about that. I think they’re avoided because they’re viewed as regressive. Or at least they’re not viewed as progressive.

On the plus side, a very simple, transparent tax system is much more difficult to defraud, saving the state further expenditure.

FGR

Maybe I'm blind here but in the list of all current allowances provided to those on welfare - what about the rent supplement?

Again maybe I missed it but I hope the supplement was omitted from the current expenditure of the relevant departments as otherwise its redistribution, without consideration, would distort the numbers heavily. Or is it simply proposed that it stay?

murphaph

djpbarry wrote: »

I’m not sure about that. I think they’re avoided because they’re viewed as regressive. Or at least they’re not viewed as progressive.

On the plus side, a very simple, transparent tax system is much more difficult to defraud, saving the state further expenditure.

Personally I don't like progressive taxation. 20% of a lot of money is a lot of money. I don't think it is necessarily fair that higher earners must give a higher proportion of their earned income away. also serves as a disincentive to work harder and earn more.

brice_nobes

murphaph wrote: »

Personally I don't like progressive taxation. 20% of a lot of money is a lot of money. I don't think it is necessarily fair that higher earners must give a higher proportion of their earned income away. also serves as a disincentive to work harder and earn more.

progressive is a politically loaded term , its used ( usually by the left ) as a way to illustrate how right thinking or wrongheaded someone is regardless of the topic being discussed , beit refuges or taxation

andrew

murphaph wrote: »

Personally I don't like progressive taxation. 20% of a lot of money is a lot of money. I don't think it is necessarily fair that higher earners must give a higher proportion of their earned income away. also serves as a disincentive to work harder and earn more.

There are a few good reasons for it. Probably the biggest one right now is inequality. Wealth is already very concentrated, and a flat tax makes that worse. I'm also not sure it really makes people work less hard in general. Maybe some lazy people yes, but I doubt people in general are turning down promotions because they're going to be taxed at a higher rate. I agree the disincentive exists, I'm just saying it's probably not very significant.

323

Fantastic suggestion OP. A political party supporting this is about the only thing that would get me to consider actually voting in Ireland again. Personally would be for a true flat rate tax, a system of taxation where one tax rate is applied to all income with no deductions.
Thereby avoiding djpberry's very genuine concern

djpbarry wrote: »

The problem with that is you’ll have someone earning €19,999 per annum tax –free, but someone earning €20,000 per annum taking home only €16,000.

Have seen this promoted by a number of economists and has already applied in most of the old eastern block countries, with rates ranging from 10% to 25%.
It would probably lend a huge boost to the real economy here also.
Believe Russia is one of the prime examples of the success of a flat tax system where the tax revenues from personal income tax rose by 25.2% in the first year after it was introduced, followed by a 24.6% increase in the second year, and a 15.2% increase in the third year.

It would make working hard worthwhile.


Love to be proven wrong here but think it's just to simple and transparent for Ireland.

What to do without all the bureaucracy? the countless civil servants that administer the current system? all the accountants that would no longer have work.

FURET

mikep wrote: »

I like the plan, although my head hurts if I think about tax etc too much..

Has this been tried anywhere else to your knowledge?

Aren't Renua toying with this idea too??

Egypt has a flat tax.

Juan Pablo

Renua proposing a 23% flat tax, how does that look based on the OPs algorithm

FreudianSlippers

andrew wrote: »

Is it definitely more progressive? A person on €100,000 at the moment pays about €40,000 in tax, as opposed to €28,000 here. A person earning €50,000 pays €15,000, but €8,000 here. And if almost everyone is paying less tax, then it just seems weird that we'd end up saving money. Where exactly is the saving coming from?

With a negative income tax it must be progressive. In my example above, those earning below the €30k cutoff pay -40% tax and those earning over the cutoff pay 40% tax.

As for the calculations, on the numbers I've run (as set out in OP) there is significant savings to be achieved.

Also, and relatedly, if you scrap the dept. of Social Welfare (save for a few things), I think it's worth being more explicit about what things aren't covered under your scheme. Is anyone at all made worse off? By how much?

That's where the idea of universal basic income or, which seems to work better in theory, negative income tax comes in. If you earn €0 you get €12k/p.a. in your pocket - you're better off than on social welfare.

djpbarry wrote: »

The problem with that is you’ll have someone earning €19,999 per annum tax –free, but someone earning €20,000 per annum taking home only €16,000.

I fixed that by scrapping the universal basic income and changing to a negative income tax: http://www.boards.ie/vbulletin/showpost.php?p=97235221&postcount=3

FGR wrote: »

Maybe I'm blind here but in the list of all current allowances provided to those on welfare - what about the rent supplement?

Again maybe I missed it but I hope the supplement was omitted from the current expenditure of the relevant departments as otherwise its redistribution, without consideration, would distort the numbers heavily. Or is it simply proposed that it stay?

If you have a look at the figures in the negative income tax post, you'll see that everyone is guaranteed a minimum of €1,000/month which is more than JSA/JSB and rent supplement at present.

A part-time worker on the minimum wage should earn approximately €10k/p.a. gross, which would mean under the flat tax with negative income tax that they would take home net €18k/p.a. as a result of the negative income tax.

FreudianSlippers

Juan Pablo wrote: »

Renua proposing a 23% flat tax, how does that look based on the OPs algorithm

It's impossible to calculate unless you know their cut-off for tax. I presume they're advocating simply a flat tax with no alteration of the social welfare system or universal basic income or negative income tax.

Peregrinus

Maybe I'm nto following the details in your OP, but are you costing the "universal" basic income on the assumption that it only has to be provided to the (563k + 211k = approx) 775k people in receipt of social welfare incomes?

If so, there may be a gap. There are a good number of people who don't qualify for any social welfare benefit in their own right, because the are dependants of other social welfare claimants, and those other claimants receive an increment in respect of them.

And then you have other non-earners who don't qualify either as social welfare claimants or dependants - e.g. students.

If you are really providing a universal basic income to all adults who don't earn at least the amount of the basic income, the likely number of recipients is going to be considerably more than 775k, but I have no idea how many more. Still, you'll have to find that out and cost it. If you're only providing it to current welfare recipients then (a) it's not universal and (b) you're not really abolishing the Dept of Social Protection; just moving claimants on to a uniform rate regardless of their circumstances. But you'll still have all the overheads, etc, associated with identifying who is entitled and who is not.

The other point, of course, is that if you are saving $8bn or so of welfare payments and catering to more or less the same number of people, it seems inevitable that many people will be worse off. You need to identify who those people are and consider why the are getting the level of benefits they currently do, and whether their circumstances make it realistic to expect them to maintain themselves and their dependents on the income that your scheme would provide them.

Greyian

FreudianSlippers wrote: »

It's impossible to calculate unless you know their cut-off for tax. I presume they're advocating simply a flat tax with no alteration of the social welfare system or universal basic income or negative income tax.

Do your changes take account of the fact that the social welfare cost (or whatever you want to put it under) will rise (compared to your first post) with the introduction of a negative income tax?

You say that €12,000*775,000 people will give us a bill of €9.3 billion. Does child benefit come under the DSP? You haven't mentioned it in your figures, so are you intending on scrapping it?

Next, we have to account for the cost of the negative income tax. These are the figures for salary bands from your OP.

0 to 9,000|368,585
9,001 to 12,000|107,297
12,001 to 15,000|116,836
15,001 to 20,000|213,112
20,001 to 25,000|216,626
25,001 to 30,000|201,085

If we assume everyone is at the very top of their band, that gives us 368,585 people earning €9,000/year. Each one will be entitled to €8,400/year. So the negative tax rate on <=€9,000 earners will cost us €3,096,114,000/year, so let's say €3.1 billion.
For people earning 9001->12000, it'll cost us €770 million per year.
For people earning 12001->15000, it'll cost us €700 million per year.
For people earning 15000->20000, it'll cost us €850 million per year.
For people earning 20001->25000, it'll cost us €430 million per year.
So that's a total added cost of €5.85 billion. That's if we assume all those people are earning the top of their respective salary bands. If they are in the middle (i.e. the average 20,001->25,000 earner is earning €22,500), then the cost of the negative income tax is €7.28 billion.

So we're now looking at a cost of €15.1-€16.58 billion, without accounting for child benefit. According to Wiki, there are just under 1 million 0-14 year olds in Ireland, so let's say 1.1 million children are eligible for child benefit. That adds another €1.78 billion to the figure, meaning we're now at €16.9-€18.35 billion. Add in the €2.42 billion you mentioned for existing programs (Disability allowance, Carer's allowance, back to education etc), and now we're at €19.32-€20.77 billion. Seeing as the €19.32 billion is the lowest end of the spectrum, based on everyone earning the very top of the bands, the real figure is probably closer to the €20.77 billion, meaning our social welfare budget would, in effect, be practically unchanged from the €20.42 billion in 2013.

So, it would seem that the suggested changes to a negligible amount to nothing to reduce our expenses. So what about our tax receipts?

Using the same source for earning levels from your OP, we would have a total of 1,111,766 people (those earning €30,001 or more per year) eligible for the flat tax of 40%.

So, what would our tax receipts be?
If we assume everyone is in the middle of their salary band (and €200,000+ has an average of €300,000/person per year), our tax receipts would be €15.615 billion.
If we assume everyone is at the very top of their band (which, I think we can all agree, is very unlikely), we'd have income tax receipts of €20.4 billion/year. This assumes that the €200000+ people are earning an average of €500,000.

I'd be of the opinion that the first figure is more likely (do we really think everyone is earning at the top of their band?). So your suggested changes would seem to lead to an overall fall in income tax receipts, with little to no change in social welfare related charges (I'm putting the negative tax under SW, but you could take it away from their and then reduce the income tax by the same figure if you wanted to do it that way).


I'm also curious where you go the gross taxable income of €131.7 billion from. To get that figure, I have to take everyone under 200000 as earning the maximum in their bands (the 0->9000, 9001->12000 etc), with the average 200,001+ figure being €1.5 million. That would give an overall average wage of over €65,000, which seems vastly out of kilter with every other average wage figure I've ever seen in Ireland.

FreudianSlippers

Peregrinus wrote: »

Maybe I'm nto following the details in your OP, but are you costing the "universal" basic income on the assumption that it only has to be provided to the (563k + 211k = approx) 775k people in receipt of social welfare incomes?

If so, there may be a gap. There are a good number of people who don't qualify for any social welfare benefit in their own right, because the are dependants of other social welfare claimants, and those other claimants receive an increment in respect of them.

And then you have other non-earners who don't qualify either as social welfare claimants or dependants - e.g. students.

If you are really providing a universal basic income to all adults who don't earn at least the amount of the basic income, the likely number of recipients is going to be considerably more than 775k, but I have no idea how many more. Still, you'll have to find that out and cost it. If you're only providing it to current welfare recipients then (a) it's not universal and (b) you're not really abolishing the Dept of Social Protection; just moving claimants on to a uniform rate regardless of their circumstances. But you'll still have all the overheads, etc, associated with identifying who is entitled and who is not.

The other point, of course, is that if you are saving $8bn or so of welfare payments and catering to more or less the same number of people, it seems inevitable that many people will be worse off. You need to identify who those people are and consider why the are getting the level of benefits they currently do, and whether their circumstances make it realistic to expect them to maintain themselves and their dependents on the income that your scheme would provide them.

I should probably edit the OP at this stage - I've scrapped the idea of universal basic income in favour of a negative income tax.

I think the problem still arises that you point out - that there will be people on increased SW benefits. However, with the idea of the negative income tax, if you earn €0 you get €12k/year which should be more than the JSA/JSB plus any "top-up" for kids etc.

andrew

FreudianSlippers wrote: »

With a negative income tax it must be progressive. In my example above, those earning below the €30k cutoff pay -40% tax and those earning over the cutoff pay 40% tax.

But it doesn't tax rich people proportionally more, so in practice, it's not particularly progressive.

As for the calculations, on the numbers I've run (as set out in OP) there is significant savings to be achieved.

It seems just a bit handy wavy. Right now, we spend €20bn on Social Welfare. Under your model, we spend €11.72bn (unless I'm reading your post wrong). That's €8bn that people had before, that they longer have. So, who's getting less under your proposal?

micosoft

FreudianSlippers wrote: »

I'd be interested to hear why people would disagree with this model - it seems equitable?

I guess the question is what outcome to you want to have. It might not actually be equitable. Particularly as this is an economic lever that can effect behaviours. What might be fair might not be the most economically advantageous depending on what you want to achieve. The low waged for example spend more money on food and local services whereas the higher waged will spend on imports. Basic example but the tax system can be used to change behaviours and get economic return.

hognef

andrew wrote: »

But it doesn't tax rich people proportionally more, so in practice, it's not particularly progressive.

?

FreudianSlippers wrote:

A person making €40,000 would pay €4,000 tax
[...]
A person making €70,000 would pay €16,000 tax
[...]
A person making €100,000 would pay €28,000 tax

The above three people would pay, respectively, 10%, 23% and 28%. How is that not taxing the "rich" people proportionally more?

BoatMad

A flat tax penalises the greater middle classes who already most of the taxes and with deductions are probably around the notional flat tax rate point. it provides massively greater benefit to those earning more and has little effect on those earning less, except those right at the margins, who end up paying tax.


its not a great idea at all really

323

andrew wrote: »

But it doesn't tax rich people proportionally more, so in practice, it's not particularly progressive.

Ahh, come on!

Define rich? The middle income earners who I seen announced recently who will soon be paying less than 50% of their earnings in tax's for the first time in 7 years?

I've absolutely no issue with social welfare.
But a system which rewards not working and penalizes all with any ambition and initiative to work hard, by taxing them back to where it makes more sense to stay at home, is progressive?????

Peregrinus

323 wrote: »

Ahh, come on!

Define rich? The middle income earners who I seen announced recently who will soon be paying less than 50% of their earnings in tax's for the first time in 7 years?

I've absolutely no issue with social welfare.
But a system which rewards not working and penalizes all with any ambition and initiative to work hard, by taxing them back to where it makes more sense to stay at home, is progressive?????

"Progressive" is a technical term in tax jargon; it has little to do with social progress. It means that higher earners pay proportionately more tax than lower earners.

So, if I would pay 10% tax on an income of €10,000 but 11% tax on an income of €1,000,000, that's a progressive income tax - but only just. If I would pay 10% tax on an income of €10,000 but 90% tax on an income of €1,000,000, that's a very progressive income tax.

The opposite is "regressive", where lower earners tend to pay a higher percentage than higher earners. Expenditure taxes tend to be regressive, since low earners spend nearly all their income (and so incur expenditure tax on all of it) whereas higher earners save or invest a greater proportion of their income, so avoiding expenditure tax on the amount saved or invested.

A "flat" tax is neither progressive nor regressive - all earners pay the same proportion of their income in tax. If I would pay 10% tax on an income of €10,000 and 10% tax on an income of €1,000,000, that's a flat tax.

Peregrinus

FreudianSlippers wrote: »

I should probably edit the OP at this stage - I've scrapped the idea of universal basic income in favour of a negative income tax.

FreudianSlippers wrote: »

I think the problem still arises that you point out - that there will be people on increased SW benefits. However, with the idea of the negative income tax, if you earn €0 you get €12k/year which should be more than the JSA/JSB plus any "top-up" for kids etc.

For the reason pointed out by Andrew, I think there must be a large number of people for whom this isn't true. You're basically proposing to cut social welfare expenditure by about 40%, while retaining the same number of beneficiaries. Realistically, that must involve large cuts for a significant number of beneficiaries, and I don't think your proposal can be meaningfully evaluated until those beneficiaries have been identified and their circumstances considered.

andrew

hognef wrote: »

?


The above three people would pay, respectively, 10%, 23% and 28%. How is that not taxing the "rich" people proportionally more?

Ah, I was looking at the Original Post. Still, 28% on €100k is very little, and does less than our current rates in terms of improving equality.

In any case, my main point is that OP proposes to cut the SW bill by a €8bn without pointing out who's going to take that hit.

FreudianSlippers

andrew wrote: »

But it doesn't tax rich people proportionally more, so in practice, it's not particularly progressive.

If you're contending that -40% to +40% isn't proportionally more, then that would be correct, but I don't really understand how that isn't considered a significant difference?

It seems just a bit handy wavy. Right now, we spend €20bn on Social Welfare. Under your model, we spend €11.72bn (unless I'm reading your post wrong). That's €8bn that people had before, that they longer have. So, who's getting less under your proposal?

The negative income tax model is, in effect, a type of means-testing. I have been unable to find any evidence of a social welfare benefit in Ireland that would give a person earning no money €1,000/month.

FreudianSlippers

Greyian wrote: »

Do your changes take account of the fact that the social welfare cost (or whatever you want to put it under) will rise (compared to your first post) with the introduction of a negative income tax?

You say that €12,000*775,000 people will give us a bill of €9.3 billion. Does child benefit come under the DSP? You haven't mentioned it in your figures, so are you intending on scrapping it?

Next, we have to account for the cost of the negative income tax. These are the figures for salary bands from your OP.

0 to 9,000|368,585
9,001 to 12,000|107,297
12,001 to 15,000|116,836
15,001 to 20,000|213,112
20,001 to 25,000|216,626
25,001 to 30,000|201,085

If we assume everyone is at the very top of their band, that gives us 368,585 people earning €9,000/year. Each one will be entitled to €8,400/year. So the negative tax rate on <=€9,000 earners will cost us €3,096,114,000/year, so let's say €3.1 billion.
For people earning 9001->12000, it'll cost us €770 million per year.
For people earning 12001->15000, it'll cost us €700 million per year.
For people earning 15000->20000, it'll cost us €850 million per year.
For people earning 20001->25000, it'll cost us €430 million per year.
So that's a total added cost of €5.85 billion. That's if we assume all those people are earning the top of their respective salary bands. If they are in the middle (i.e. the average 20,001->25,000 earner is earning €22,500), then the cost of the negative income tax is €7.28 billion.

So we're now looking at a cost of €15.1-€16.58 billion, without accounting for child benefit. According to Wiki, there are just under 1 million 0-14 year olds in Ireland, so let's say 1.1 million children are eligible for child benefit. That adds another €1.78 billion to the figure, meaning we're now at €16.9-€18.35 billion. Add in the €2.42 billion you mentioned for existing programs (Disability allowance, Carer's allowance, back to education etc), and now we're at €19.32-€20.77 billion. Seeing as the €19.32 billion is the lowest end of the spectrum, based on everyone earning the very top of the bands, the real figure is probably closer to the €20.77 billion, meaning our social welfare budget would, in effect, be practically unchanged from the €20.42 billion in 2013.

So, it would seem that the suggested changes to a negligible amount to nothing to reduce our expenses. So what about our tax receipts?

Using the same source for earning levels from your OP, we would have a total of 1,111,766 people (those earning €30,001 or more per year) eligible for the flat tax of 40%.

So, what would our tax receipts be?
If we assume everyone is in the middle of their salary band (and €200,000+ has an average of €300,000/person per year), our tax receipts would be €15.615 billion.
If we assume everyone is at the very top of their band (which, I think we can all agree, is very unlikely), we'd have income tax receipts of €20.4 billion/year. This assumes that the €200000+ people are earning an average of €500,000.

I'd be of the opinion that the first figure is more likely (do we really think everyone is earning at the top of their band?). So your suggested changes would seem to lead to an overall fall in income tax receipts, with little to no change in social welfare related charges (I'm putting the negative tax under SW, but you could take it away from their and then reduce the income tax by the same figure if you wanted to do it that way).

Great post - thanks. I think your figures are pretty much spot on at the mid-rate of €7.28bn cost of negative income tax and €15.615bn in terms of tax intake; the mistake (which is my fault since I haven't had a chance to amend the OP is that I'm not advocating negative income tax and universal basic income. I concluded that UBI would not work and simply having a negative income tax would achieve the same goals at a reduced cost. So you'd have €7.28bn + €2.42bn = €9.7bn deducted from the €15.615bn intake, or +€5.915

As an aside, one point I would make is that even if the figures ended up at status quo in terms of the government books, wouldn't it be preferential to potentially give more people more money in their pockets at both ends of the scale?

And yes, I would advocate scrapping child benefit. Under the proposed negative tax rate, a person earning no money with 2 kids is still better off at €12k/p.a. than they are under the current system. I do not think we should provide incentive or subsidisation for children beyond that part; it's frankly irresponsible for people with no income to have that many kids. Of course, this system would potentially still give income to stay-at-home parents.

I'm also curious where you go the gross taxable income of €131.7 billion from. To get that figure, I have to take everyone under 200000 as earning the maximum in their bands (the 0->9000, 9001->12000 etc), with the average 200,001+ figure being €1.5 million. That would give an overall average wage of over €65,000, which seems vastly out of kilter with every other average wage figure I've ever seen in Ireland.

This is probably a rookie mistake (been a while since I did econ in uni) but I took the total income tax intake of €17.915bn which is 13.6% of gross income in direct taxes, giving a gross figure of €131.7.

I would have thought it would be easier to find the gross income figure to be honest.

Peregrinus

FreudianSlippers wrote: »

The negative income tax model is, in effect, a type of means-testing. I have been unable to find any evidence of a social welfare benefit in Ireland that would give a person earning no money €1,000/month.

But your own figures in post 1 suggest a total SW bill of $20.3 billion and you estimate 775,000 recipients. That's an average annual payout in excess of 26,000 p.a. - more than double the 1,000/month that you suggest is more or less the max anyone could receive.

Something's not right here. Unless one (or both) of the figures I quote are wildly, wildly off there are plainly very many people getting more than 1,000/month in SW supports.

I think you need to dig further into your figures for SW payments and your assumptions about the number of people dependent on them (which, note, is likely to be significantly larger than the number of people receiving them). At the moment your calculations look individually reasonable and yet the end result is simply not credible.

FreudianSlippers

Guys - I actually can't edit the OP since it's too late, but for the avoidance of doubt - scrap the idea of universal basic income in favour of the idea of a negative income tax as outlined here!

Peregrinus

FreudianSlippers wrote: »

Guys - I actually can't edit the OP since it's too late, but for the avoidance of doubt - scrap the idea of universal basic income in favour of the idea of a negative income tax as outlined here!

Well, have you costed this? Your original costing was based on paying 12k to each of about 775,000 people who receives SW benefits. Your current proposal is to pay anything between 0 and 12k to each person in the state who earns less than 30k. How many people is that? And have you any way of getting a handle on what the average payout will be?

My gut feeling is that this will be more expensive. On the assumption that your 775k SW recipients currently earn next to nothing from other sources, you'll still have 775k people getting 12k or very near it. plus a new population of employed but low-earning people getting mostly less than 12k but considerably more than 0.

This might be a useful starting point. It's a blog post quoting a parliamentary question giving details of (estimated) income distribution per tax returns for 2014/15. It estimates 1.22 million tax returns showing gross income of less than 30k. Note that some of these are joint returns by married couples; if they could maximise their negative income tax receipts by filing separately rather than jointly they would do so, so there are significantly more than 1.22 million individual taxpayers earning less than 30k. And of course this figure doesn't include people who file no tax return (because they currently have no taxable income requiring a return) but who undoubtedly would do so if there were a negative income tax.

hognef

Peregrinus wrote: »

Expenditure taxes tend to be regressive, since low earners spend nearly all their income (and so incur expenditure tax on all of it) whereas higher earners save or invest a greater proportion of their income, so avoiding expenditure tax on the amount saved or invested.

I'm assuming you're referring to VAT and sales taxes here. Yes, that's one way to look at it, but technically those taxes are surely flat, as the tax percentage is the same regardless of the taxable amount (the cost of your shopping, say -not the purchaser's income or wealth).

Peregrinus

hognef wrote: »

I'm assuming you're referring to VAT and sales taxes here. Yes, that's one way to look at it, but technically those taxes are surely flat, as the tax percentage is the same regardless of the taxable amount (the cost of your shopping, say -not the purchaser's income or wealth).

Progressivity in tax is usually measured in relation to income, regardless of whether the tax is an income tax or a tax on something else.

So excise on cigarettes, for example, is a sharply regressive tax. A packet of cigarettes costs the same whether your are a millionaire or a pauper, but a pauper who smokes will spend a greater proportion of his income on cigarettes than a millionaire who smokes.

draiochtanois

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Greyian

FreudianSlippers wrote: »

Great post - thanks. I think your figures are pretty much spot on at the mid-rate of €7.28bn cost of negative income tax and €15.615bn in terms of tax intake; the mistake (which is my fault since I haven't had a chance to amend the OP is that I'm not advocating negative income tax and universal basic income. I concluded that UBI would not work and simply having a negative income tax would achieve the same goals at a reduced cost. So you'd have €7.28bn + €2.42bn = €9.7bn deducted from the €15.615bn intake, or +€5.915

Just on this, the figures I gave for the negative tax cost don't include the 775k unemployed/pensioners. It was purely the people from the salary bands in the link you provided. If we then include €12,000*775,000 (their income is €0, so they get 40%*€30,000 each from the negative tax), it's €9,300,000,000+€7,280,000,000+€2,420,000,000, which is €19 billion, not €9.7 billion.

Greyian

hognef wrote: »

I'm assuming you're referring to VAT and sales taxes here. Yes, that's one way to look at it, but technically those taxes are surely flat, as the tax percentage is the same regardless of the taxable amount (the cost of your shopping, say -not the purchaser's income or wealth).

No, they would be regressive. Whether a tax is regressive or progressive isn't linked to the nominal value of an item/service or the specific percentage charged, but to the total percentage of your income that the tax takes.

So if someone is on €100,000, their net income would be €59,616.
For someone on €30,000, their net income would be €24,855.

If the person on €30,000 spends €5,000 on stuff with a 23% VAT rate, their total VAT will be €934.96.
The person on €100,000 saves more of their money, but they still spend twice as much on stuff with a 23% VAT rate, so their total VAT is €1869.92.

As a percentage of income, the person on €300,000 has over 3.1% of their income taken in the form of VAT, while the person on €100,000 (despite spending twice as much) only loses 1.87% of their income to VAT.

This is why you'll generally find that the overall rate of tax paid by all income earners is closer (% terms, not nominal terms) that simply looking at income tax rates.

FURET

draiochtanois wrote: »

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What fascism?

andrew

FreudianSlippers wrote: »

If you're contending that -40% to +40% isn't proportionally more, then that would be correct, but I don't really understand how that isn't considered a significant difference?

Intuitively, it just feels like a tax rate of 28% on those earning €100k is too low.

The negative income tax model is, in effect, a type of means-testing. I have been unable to find any evidence of a social welfare benefit in Ireland that would give a person earning no money €1,000/month.

I think you're missing the services which the Dept Social Protection provides. Say social workers for example. If a family has a social worker, or makes use of some other service, then you have to consider the value of that (via. the salary of the person employed to provide that service) when considering how much people get from social welfare. I suspect if you added up the value of the services provided by the Dept, as well as the value of the payments you're no longer making, you'd find some/all of that €8bn.

So in effect, you're not really saving money, so much as scrapping a significant chunk of the Social welfare framework.

Wanderer78

any sign of them taxing multinational companies more effectively and the introduction of a public banking system? we re at nothing if not

draiochtanois

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FreudianSlippers

draiochtanois wrote: »

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I don't think you know what fascism is. It certainly isn't fascist to suggest that the government shouldn't subsidise those on no income having excessive children.

draiochtanois

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FreudianSlippers

draiochtanois wrote: »

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You're claiming there is a constitutional right to be remunerated per child? An absurd proposition.

Greyian

draiochtanois wrote: »

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No-one is suggesting setting a certain income requirement for having children. You should just have to provide for them yourself. That's kind of a big part of being a parent.

FreudianSlippers

Greyian wrote: »

No-one is suggesting setting a certain income requirement for having children. You should just have to provide for them yourself. That's kind of a big part of being a parent.

I'm not even necessarily suggesting we scrap it entirely. I just think the concept that we subsidise up to 8 kids is insane.

Greyian

FreudianSlippers wrote: »

I'm not even necessarily suggesting we scrap it entirely. I just think the concept that we subsidise up to 8 kids is insane.

I agree, I don't think it should be scrapped entirely. But the belief some people have that they can go say "I've had children, give me money" is appalling.

draiochtanois

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