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The Case For Flat Tax In Ireland
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The "marginal tax rate", FS, is the additional tax you will pay on any extra element of income that you earn, over and above the income that you are earning now. In your system the effective marginal tax rate is 40% at every point. (Yes, I know, the guy on 11k isn't actually paying any tax on the extra he earns; he's just getting less negative tax paid to him. But in terms of how that affects his pocket, and his incentive to earn more money, that's the same thing.)0
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By definition effective marginal tax rate includes social welfare contributions etc. and would therefore include negative taxation.Peregrinus wrote: »The "marginal tax rate", FS, is the additional tax you will pay on any extra element of income that you earn, over and above the income that you are earning now. In your system the effective marginal tax rate is 40% at every point. (Yes, I know, the guy on 11k isn't actually paying any tax on the extra he earns; he's just getting less negative tax paid to him. But in terms of how that affects his pocket, and his incentive to earn more money, that's the same thing.)
Maybe my brain is just a bit soaked with booze from the rugby at the weekend, but isn't marginal tax moot without considering the negative income tax when the person is net better off?0 -
The reason marginal income tax rates are signficant is basically this. Suppose I am earning X euros. By working longer hours, gaining extra qualifications, or whatever, I can increase this to X + Y euros. If I choose to do that, national productivity has gone up by Y euros, which is a good thing.
But I'm going to pay tax at my marginal rate on the extra Y euros that I earn, and this will affect my willingness to do the difficult or unpleasant things I need to do to earn the extra Y euros. If my marginal tax rate is only 5%, it will have very little impact on my decision; if I would do these things for 100 euros, I will probably also do them for just 95 euros. On the other hand, if my marginal rate is 95%, I almost certainly won't; I am not prepared to do these things for just 5 euros.
Right. In your system, the marginal tax rate is 40% at every point. Under the present system, everyone earning less than 33,800 euros, and many people earning between 33,800 and 42,800, face a significantly lower marginal rate than that.
One result of introducing your system therefore, is for those earning less than (let's split the difference) about 38,000 euros you are increasing the disincentive to earn more money. That may be a price worth paying to achieve the attractions of your system, but you do need to recognize that it is a price, and it will be paid. Relative to the present system, your system reduces the incentives for those earning less than about 38k to improve their earnings, and we should expect them to respond accordingly (i.e. by being more reluctant to do whatever they need to do to increase their earnings).0 -
Peregrinus wrote: »The reason marginal income tax rates are signficant is basically this. Suppose I am earning X euros. By working longer hours, gaining extra qualifications, or whatever, I can increase this to X + Y euros. If I choose to do that, national productivity has gone up by Y euros, which is a good thing.
But I'm going to pay tax at my marginal rate on the extra Y euros that I earn, and this will affect my willingness to do the difficult or unpleasant things I need to do to earn the extra Y euros. If my marginal tax rate is only 5%, it will have very little impact on my decision; if I would do these things for 100 euros, I will probably also do them for just 95 euros. On the other hand, if my marginal rate is 95%, I almost certainly won't; I am not prepared to do these things for just 5 euros.
Right. In your system, the marginal tax rate is 40% at every point. Under the present system, everyone earning less than 33,800 euros, and many people earning between 33,800 and 42,800, face a significantly lower marginal rate than that.
One result of introducing your system therefore, is for those earning less than (let's split the difference) about 38,000 euros you are increasing the disincentive to earn more money. That may be a price worth paying to achieve the attractions of your system, but you do need to recognize that it is a price, and it will be paid. Relative to the present system, your system reduces the incentives for those earning less than about 38k to improve their earnings, and we should expect them to respond accordingly (i.e. by being more reluctant to do whatever they need to do to increase their earnings).
http://www.tasc.ie/download/pdf/tasc_preserving_the_41_per_cent_tax_rate.pdf
This paper suggests that the marginal tax rate is 52% at those levels and that people on lower incomes pay little tax
" On the contrary, it is because people on low
earnings levels do not pay much tax or social
insurance compared to their counterparts in other
countries. Although USC is unpopular in Ireland
because it affects people on low incomes, people on
low wages do pay more social insurance and tax in
many other European countries (and receive a
wider range of public services or risk protection
through health care services and social welfare)"
A flat tax of 20% on income up to 25k, no credits, a flat tax of 30% on earnings up to 100k and 40% thereafter would probably be the way to go. Add in an increase in the minimum wage.0 -
No, the TASC paper pretty much confirms what I said. I said that under the present system, anyone earning less than "about 38k" faces a marginal rate of less than 40%. The TASC paper confirms this for anyone earning less than 37.5k.This paper suggests that the marginal tax rate is 52% at those levels. . .
OK, not to pick nits or anything, but that's not actually a flat tax; it's a progressive tax.A flat tax of 20% on income up to 25k, no credits, a flat tax of 30% on earnings up to 100k and 40% thereafter would probably be the way to go. Add in an increase in the minimum wage.
Leaving the terminolgy aside, your proposed structure would result in much higher taxes for your low range earners (up to 25k) than at present, somewhat higher taxes for earners between 25k and about 35k, and lower taxes for everyone earning above that amount. So your proposal, while not actually flat, is flatter than FS's.
It's obviously very hard on low earners, compared to FS's proposal. Under FS's proposal, a single person on 11k would get a payment to bring his income up to 18,600. Under the current system, per the TASC he pays 2.2% income tax, bringing his income down to 10,750, plus whatever supports he gets from the social welfare system. Under your proposal, he would pay 20% tax, bringing his income down to 8,800, and you don't say whether you would increase, reduce, abolish or make no change at all to his social welfare payments, although obviously there'd be pressure to increase them.
You also haven't costed your system, but at a glance it looks set to produce a substantial drop in tax revenues. Slightly less than half of all taxpayers will pay more tax under your system, and more than half will pay less tax. But the ones paying less tax are the higher earners, and reductions in their tax rates will result in a much bigger fall in revenue than increases in rates for the low paid will produce a rise.
So, in brief, your system looks designed to impoverish low earners, increase pressure on social welfare and reduce the tax revenues from which social welfare could be funded. I'm not sure why you think it's a good idea.0 -
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http://www.tasc.ie/download/pdf/tasc_preserving_the_41_per_cent_tax_rate.pdf
This paper suggests that the marginal tax rate is 52% at those levels and that people on lower incomes pay little tax
" On the contrary, it is because people on low
earnings levels do not pay much tax or social
insurance compared to their counterparts in other
countries. Although USC is unpopular in Ireland
because it affects people on low incomes, people on
low wages do pay more social insurance and tax in
many other European countries (and receive a
wider range of public services or risk protection
through health care services and social welfare)"
A flat tax of 20% on income up to 25k, no credits, a flat tax of 30% on earnings up to 100k and 40% thereafter would probably be the way to go. Add in an increase in the minimum wage.
If you earn a load of money pay a load of tax
If you earn a little money pay a little tax
Simples,
Aspire to paying a load of tax, and you will have a load of money.
Aspire to paying a little tax, and .........0 -
Some of the perceived inequality may be solved by, instead of deviating from the flat tax, reducing the level of exemption for those above a certain gross income should ensure the system is more ‘regressive’ (although I maintain regressive/progressive is moot where there is any negative income tax).
So let’s consider a flat tax with negative income tax on the following assumptions:• Flat income tax of 40%;
• Tax exemption is €30,000 up to €99,999;
• Tax exemption is €25,000 up to €199,999;
• Tax exemption is €20,000 over €200,000;
• The subsidy rate is 40% (equal to flat tax rate).
Table below is based on the following presumptions:• “Low” = all earners make bottom of the range;
• “Mid” = all earners make middle of the range;
• All calculations over €80k gross are calculated at all earners making bottom of the range to avoid skewing the figures;
• All negative amounts rounded up to nearest million;
• All positive amounts rounded down to the nearest million.
Range of Gross Income € Number of Income Earners Low Tax Take (m) Mid Tax Take (m)
0 to 9,000 368,585 (4,423) (3,760)
9,001 to 12,000 107,297 (901) (837)
12,001 to 15,000 116,836 (841) (771)
15,001 to 20,000 213,112 (1,278) (1,066)
20,001 to 25,000 216,626 (867) (650)
25,001 to 30,000 201,085 (402) (201)
30,001 to 40,000 324,506 0 649
40,001 to 50,000 229,709 919 1,378
50,001 to 60,000 157,805 1,262 1,578
60,001 to 70,000 107,045 1,284 1,498
70,001 to 80,000 77,378 1,238 1,392
80,001 to 100,000 91,301 1,826 1,826
100,001 to 120,000 47,956 1,438 1,438
120,001 to 150,000 34,809 1,322 1,322
150,001 to 200,000 22,512 1,125 1,125
Over 200,001 24,642 1,774 1,774
Total 2,341,203 3,476 6,695
Carrying over my various SW payments from the OP at a cost of €2.42bn and carrying over the current cost of child benefit of €1.9bn (http://www.publicpolicy.ie/a-survey-of-the-benefit-system-in-ireland/) for a total of €4.32bn, means that on the low estimate the exchequer would be €844m in deficit. I would argue this isn’t so bad on income tax take alone given this is a low estimate where everyone makes the bottom of their gross income range above. If we calculate on the mid-range though, the exchequer runs a €2.375bn surplus. I would certainly argue that at its worst, we would be looking somewhere between these figures or about €765m surplus.
I would go on to argue that we should only give child benefit under the flat tax with negative income tax system to those earning less than €9,001 gross above – after negative income tax they take home a minimum of €12,000 – which would mean our maximum child benefit cost to the exchequer would be about €1.145bn (using the €1.9bn above going to 611,366 people = €3,108/person * 368,858 = €1.145bn). That means the total figure is (€1.145bn + €2.42bn) €3.565bn or only €89m in the red based on the ‘Low’ figures.
How does this look in reality for a family with 2 unemployed adults and 3 children?
Each adult earns €0 before negative income tax and €12,000 after same is applied, or €24,000/year plus €3,108/year for their 3 kids in child benefit to give an annual total of €27,108. Given the example here (http://www.boards.ie/vbulletin/showpost.php?p=97283770&postcount=63 I believe there is an error where although 2 children are stated, 3 were included in the calculation) this family is about €1,500 better off.0 -
FreudianSlippers wrote: »How does this look in reality for a family with 2 unemployed adults and 3 children?
Each adult earns €0 before negative income tax and €12,000 after same is applied, or €24,000/year plus €3,108/year for their 3 kids in child benefit to give an annual total of €27,108. Given the example here (http://www.boards.ie/vbulletin/showp...0&postcount=63 I believe there is an error where although 2 children are stated, 3 were included in the calculation) this family is about €1,500 better off.
Your figures don't account for rent allowance, so anyone who currently gets rent allowance would be worse off.FreudianSlippers wrote: »• Flat income tax of 40%;
• Tax exemption is €30,000 up to €99,999;
• Tax exemption is €25,000 up to €199,999;
• Tax exemption is €20,000 over €200,000;
• The subsidy rate is 40% (equal to flat tax rate).
As for tax exemptions...so someone earning €100,000 gross would take home €70,000 (€100,000-((€100,000-€25,000)*40%)), while someone on €99,000 would take home €71,400 (€99,000-((€99,000-€30,000)*40%)).
Why should someone on a lower wage have a higher take-home amount?
The system still doesn't deal with the issue that at lower wages, there is a reduced incentive to work.
If I can just sit on my arse all day and get €12,000, what is the incentive to work 20 hours per week (at €8.65/hour), when it will only actually see my take-home jump by €5,400 (meaning I'm getting just €5.20 per hour worked)? That doesn't even factor in the cost associated with working (transport to/from work, lunches etc).
At the end of the day, you're also still not accounting for the fact that you're slashing the social welfare budget massively. You keep saying that everyone will be better off, yet that is impossible if you're cutting the spend on social welfare by up to 50%.0 -
Good. If you're getting the guts of €30k from the state for doing nothing you don't need more. See your own quote below.Your figures don't account for rent allowance, so anyone who currently gets rent allowance would be worse off.
Because a previous poster wanted to ensure we stick with Irish tradition and penalise those who earn more money.As for tax exemptions...so someone earning €100,000 gross would take home €70,000 (€100,000-((€100,000-€25,000)*40%)), while someone on €99,000 would take home €71,400 (€99,000-((€99,000-€30,000)*40%)).
Why should someone on a lower wage have a higher take-home amount?
I take it you believe the current system does? I'm removing the stigma of being on the dole and queueing for your handouts whilst giving everyone in the state additional disposable income.The system still doesn't deal with the issue that at lower wages, there is a reduced incentive to work.
If I can just sit on my arse all day and get €12,000, what is the incentive to work 20 hours per week (at €8.65/hour), when it will only actually see my take-home jump by €5,400 (meaning I'm getting just €5.20 per hour worked)? That doesn't even factor in the cost associated with working (transport to/from work, lunches etc).
It does create incentive to work and declare such work as well. If you only earn €5,000 you're still better off by €3,000 under this system than you were if you earned €0.
It means a person who goes out and does odd jobs or part-time work and brings in a bit of money is actually seeing that money in their pocket. Earn €10k a year; take home €18k and still get your child benefit.
A significant amount of this is covered by the increase of negative income for all people. Yes, there are some aspects that are cut - but look at the list of items, most are ridiculous in the first place and a significant portion is spent on administration.At the end of the day, you're also still not accounting for the fact that you're slashing the social welfare budget massively. You keep saying that everyone will be better off, yet that is impossible if you're cutting the spend on social welfare by up to 50%.0 -
FreudianSlippers wrote: »Good. If you're getting the guts of €30k from the state for doing nothing you don't need more. See your own quote below.
So basically, you're saying that nobody is worse off....but then you admit there will actually be people worse off, but that's a good thing, because they don't deserve what you're getting?
You can be of the opinion that social welfare is excessive as it stands, but you still have to admit and accept that under your system there will be people worse off, sometimes considerably so.FreudianSlippers wrote: »Because a previous poster wanted to ensure we stick with Irish tradition and penalise those who earn more money.
But what you're suggesting here goes far further than what we even have in place.
Currently, the more you earn, the less you get to keep of the extra (i.e. someone earning €100,000 will take home more than someone on €99,000, but not the full €1,000).
What you have suggested actually penalises people for earning more money. You'll actually have people who get a raise, yet end up with less money in their net salary. This only happens in Ireland at very low salary levels (i.e. when you start to enough to enough to begin paying USC/PRSI).FreudianSlippers wrote: »I take it you believe the current system does? I'm removing the stigma of being on the dole and queueing for your handouts whilst giving everyone in the state additional disposable income.
It does create incentive to work and declare such work as well. If you only earn €5,000 you're still better off by €3,000 under this system than you were if you earned €0.
You can not possibly give 'everyone in the state' extra disposable income. Someone has to pay for what you're giving, in some way.
Under the current system, someone on €20,000 a year will get an increase of €690 for each €1,000 raise they get (€705 per €1,000 from next year, due to the changes in the USC rates). Under your system, they would see €600 of it. At lower wage levels, the marginal rate of your system provides less, not more, encouragement to work.FreudianSlippers wrote: »It means a person who goes out and does odd jobs or part-time work and brings in a bit of money is actually seeing that money in their pocket. Earn €10k a year; take home €18k and still get your child benefit.
But you said you'd remove child benefit for people earning over €9,001 gross?FreudianSlippers wrote: »I would go on to argue that we should only give child benefit under the flat tax with negative income tax system to those earning less than €9,001 gross.
So under your system, 2 parents/3 children with no income would get €27,108 (your figure). If they each get jobs paying €10,000, what happens? Do they lose to child benefit completely? In which case, they'd be getting a total of €36,000. So despite earning €20,000 through work, they are less than €9,000/year better off. That's a marginal tax rate of over 55%. Where's the incentive to work. If that is minimum wage, you're looking at a combined total of 2312 hours worked per year, for €8,892. That's €3.85/hour.
Where is this incentive?FreudianSlippers wrote: »A significant amount of this is covered by the increase of negative income for all people. Yes, there are some aspects that are cut - but look at the list of items, most are ridiculous in the first place and a significant portion is spent on administration.
No, based on the earlier costing, the halving of the social welfare budget includes the negative income tax. The government total outlay on child benefit, disability allowance, carer's allowances etc. plus the negative income tax came to roughly half the current SW spend. So you're basically saying that, as it stands, half of our social welfare spend is ridiculous?
You quite simply cannot slash welfare spending by 50% and claim the vast majority of people will be better off. It is mathematically impossible.0 -
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