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The Case For Flat Tax In Ireland

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    #32
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭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.


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    #33
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭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.


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    #34
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭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!


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    #35
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭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.


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    #36
    hognef
    Registered Users Posts: 828 ✭✭✭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).


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    #37
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭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.


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    #38
    draiochtanois
    Registered Users Posts: 2,655 ✭✭✭draiochtanois


    This post has been deleted.


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    #39
    Greyian
    Registered Users Posts: 963 ✭✭✭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.


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    #40
    Greyian
    Registered Users Posts: 963 ✭✭✭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.


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    #41
    FURET
    Closed Accounts Posts: 685 ✭✭✭FURET


    draiochtanois wrote: »
    This post has been deleted.

    What fascism?


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    #42
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,368 Mod ✭✭✭✭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.


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    #43
    Wanderer78
    Registered Users Posts: 28,838 ✭✭✭✭Wanderer78


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


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    #44
    draiochtanois
    Registered Users Posts: 2,655 ✭✭✭draiochtanois


    This post has been deleted.


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    #45
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    draiochtanois wrote: »
    This post has been deleted.
    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.


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    #46
    draiochtanois
    Registered Users Posts: 2,655 ✭✭✭draiochtanois


    This post has been deleted.


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    #47
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    draiochtanois wrote: »
    This post has been deleted.
    You're claiming there is a constitutional right to be remunerated per child? An absurd proposition.


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    #48
    Greyian
    Registered Users Posts: 963 ✭✭✭Greyian


    draiochtanois wrote: »
    This post has been deleted.

    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.


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    #49
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭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.


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    #50
    Greyian
    Registered Users Posts: 963 ✭✭✭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.


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    #51
    draiochtanois
    Registered Users Posts: 2,655 ✭✭✭draiochtanois


    This post has been deleted.


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    #52
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    draiochtanois wrote: »
    This post has been deleted.
    You seem to be having an abreaction to a suggestion that child benefit is excessive. Given the negative tax makes everyone better off, I don't see the need to pay an additional child benefit on top of that - I simply argued that we shouldn't subsidise people having excessive amounts of children, or do I feel it is appropriate for people to believe they are entitled to money from the government for having children.


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    #53
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭Peregrinus


    Is this a roundabout concession, Freudian Slippers, that the class of people made worse off by your reforms will include people on low incoomes (but in excess of 12K) who are currently in receipt of children's allowance?


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    #54
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    Peregrinus wrote: »
    Is this a roundabout concession, Freudian Slippers, that the class of people made worse off by your reforms will include people on low incoomes (but in excess of 12K) who are currently in receipt of children's allowance?
    I don't see how one could arrive at that conclusion given:

    A person making €10,000 would receive €8,000 = €18k/p.a. after tax
    A person making €20,000 would receive €4,000 = € 24k/p.a. after tax
    A person making €30,000 would receive €0 and pay €0 tax = €30k/p.a. after tax

    These people are all manifestly better off on this system than they currently are with child benefit.


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    #55
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭Peregrinus


    Well, then, are you accepting that your system must cost considerably more than the 9.3 bn estimated initially?

    I don't want to seem unduly critical, but your initial universal basic income was costed at 9.3 bn, but would have meant many people being signficantly worse off, while the negative income tax may leave fewer or no people worse off but hasn't been costed and may involve no savings at all over the current SW system, or may even be more expensive than the current SW system.

    (Yes, I've seen the costings for the negative income tax in Greyian's post, but they assume that each tax return represents just one taxpayer, which it doesn't, and - as Greyian himself points out in a later post - they ignore the cost of providing negative income tax to the (large) class of people who currently do not make a tax return, but undoubtedly will if it means they will get a payment under the negative income tax system.)


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    #56
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,368 Mod ✭✭✭✭andrew


    FreudianSlippers wrote: »

    These people are all manifestly better off on this system than they currently are with child benefit.

    Here's a list of all of the benefits which the Dept. Social protection provides, at least the ones they list on their website anyway:

    Child Benefit
    After School Child Care Scheme
    Family income supplement
    One parent family payment
    Adoptive Benefit
    Maternity Benefit
    Health and Safety Benefit
    Guardian's Payments
    Back to School Clothing and Footwear Allowance
    School meals scheme
    Carer's Allowance
    Carer's Benefit
    Respite Care Grant
    Domiciliary Care Allowance
    Illness benefit
    Disability Allowance
    Invalidity Pension
    Blind pension
    Partial Capacity Benefit
    Workplace Supports
    Occupational injuries benefit Scheme
    State pension scheme
    Homemakes scheme
    Pre-Retirement allowance
    Househouse benefits (electricity, gas, TV)
    Widow's/surviving partner pension
    Widoe's/surviving partner grant
    Death benefit
    Funeral Expense assistance
    Funeral Grant
    Free travel
    Fuel allowance
    Social Welfare (various jobseekers benefit)
    Supplementary Welfare Allowance
    Water conservation grant
    Various Job promotion/job activation programmes (e.g. 'Jobpath' and 'Jobseeker Pack')
    Various initiatives aimed at employers

    Some people who currently get those services get more than €12,000 a year worth. So, people in receipt of at least some of the above services will be worse off under your proposal. They must be, because you're spending €8bn less.


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    #57
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    andrew wrote: »
    Here's a list of all of the benefits which the Dept. Social protection provides, at least the ones they list on their website anyway:

    Child Benefit
    After School Child Care Scheme
    Family income supplement
    One parent family payment
    Adoptive Benefit
    Maternity Benefit
    Health and Safety Benefit
    Guardian's Payments
    Back to School Clothing and Footwear Allowance
    School meals scheme
    Carer's Allowance
    Carer's Benefit
    Respite Care Grant
    Domiciliary Care Allowance
    Illness benefit
    Disability Allowance
    Invalidity Pension
    Blind pension
    Partial Capacity Benefit
    Workplace Supports
    Occupational injuries benefit Scheme
    State pension scheme
    Homemakes scheme
    Pre-Retirement allowance
    Househouse benefits (electricity, gas, TV)
    Widow's/surviving partner pension
    Widoe's/surviving partner grant
    Death benefit
    Funeral Expense assistance
    Funeral Grant
    Free travel
    Fuel allowance
    Social Welfare (various jobseekers benefit)
    Supplementary Welfare Allowance
    Water conservation grant
    Various Job promotion/job activation programmes (e.g. 'Jobpath' and 'Jobseeker Pack')
    Various initiatives aimed at employers

    Some people who currently get those services get more than €12,000 a year worth. So, people in receipt of at least some of the above services will be worse off under your proposal. They must be, because you're spending €8bn less.
    I linked a full list in the OP; I'm not hiding that there are many cuts, however, I reject your premise that there are many people getting over €12k/p.a. in benefits from the state at present.


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    #58
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    Peregrinus wrote: »
    Well, then, are you accepting that your system must cost considerably more than the 9.3 bn estimated initially?

    I don't want to seem unduly critical, but your initial universal basic income was costed at 9.3 bn, but would have meant many people being signficantly worse off, while the negative income tax may leave fewer or no people worse off but hasn't been costed and may involve no savings at all over the current SW system, or may even be more expensive than the current SW system.

    (Yes, I've seen the costings for the negative income tax in Greyian's post, but they assume that each tax return represents just one taxpayer, which it doesn't, and - as Greyian himself points out in a later post - they ignore the cost of providing negative income tax to the (large) class of people who currently do not make a tax return, but undoubtedly will if it means they will get a payment under the negative income tax system.)
    I haven't had an opportunity to run the numbers myself, but I still stand over the contention that even at a net wash whereby there is no savings to the government vis-a-vis tax intake/expenditure, a flat tax with negative income tax keeps more disposable income in circulation and has a net general benefit to the vast majority of people.

    Will some people be worse off? Perhaps, but I've yet to see any examples of people who make over €12k/year in SW receipts. A significant portion of those benefits are frankly ridiculous as well.


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    #59
    Peregrinus
    Registered Users Posts: 26,103 ✭✭✭✭Peregrinus


    andrew wrote: »
    Here's a list of all of the benefits which the Dept. Social protection provides, at least the ones they list on their website anyway . . . Some people who currently get those services get more than €12,000 a year worth. So, people in receipt of at least some of the above services will be worse off under your proposal. They must be, because you're spending €8bn less.
    I think he's no longer spending $8bn less. The initial proposal for a universal basic income was estimated to cost $8bn less, but that has been replaced with a proposal for a negative income tax which Greyian has suggested will cost more or less the same as the current SW system. But for reasons already mentioned I think Greyian's estimates probably understate the cost of the negative income tax; it will likely cost more than the current SW system.


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    #60
    Godge
    Closed Accounts Posts: 21,727 ✭✭✭✭Godge


    FreudianSlippers wrote: »
    I haven't had an opportunity to run the numbers myself, but I still stand over the contention that even at a net wash whereby there is no savings to the government vis-a-vis tax intake/expenditure, a flat tax with negative income tax keeps more disposable income in circulation and has a net general benefit to the vast majority of people.

    Will some people be worse off? Perhaps, but I've yet to see any examples of people who make over €12k/year in SW receipts. A significant portion of those benefits are frankly ridiculous as well.

    Even if they are worse off, there is the general question of a cap on social welfare benefits as in the UK.


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    #61
    FreudianSlippers
    Registered Users Posts: 20,397 ✭✭✭✭FreudianSlippers


    Peregrinus wrote: »
    I think he's no longer spending $8bn less. The initial proposal for a universal basic income was estimated to cost $8bn less, but that has been replaced with a proposal for a negative income tax which Greyian has suggested will cost more or less the same as the current SW system. But for reasons already mentioned I think Greyian's estimates probably understate the cost of the negative income tax; it will likely cost more than the current SW system.
    I don't think that the status quo is working nor is it fair to the vast majority of taxpayers in this country. I'm interested to understand your desire to retain same?


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