Tax relief and tax payment...

In relation to calls for changes to tax relief for charitable donations, the SBP notes that Frank Flannery (of FG) has chaired a report…

…the Forum on Philanthropy and Fundraising – a state-appointed body which was reconvened last year – has recommended “encouraging major gift philanthropy”. Its chairman, Frank Flannery, believes the best way to do this is through incentives.
While there are no upper limits on the tax reliefs companies or corporations can receive at present, high-earning individuals (deemed to be those earning over €250,000 a year) cannot claim more than €80,000 under all tax reliefs in one year.
The forum wants the government to consider an annual cap of €1 million for one or more charitable donations, against which tax relief of 41 per cent could be reclaimed. Flannery, a former Fine Gael director of elections, said that his objective was “to bring Ireland into the 21st century” in the culture of philanthropy.

What do we need?

“We need a more realistic and benign tax regime,” he said.

Though…

Flannery…said he recognised that “some people think these are tax avoidance schemes”.

Indeed they do.

Actually, speaking about tax relief…

Depressing to read in the SBP that:

The state’s top 1 per cent of income earners will pay an effective tax rate of just 28 per cent this year, according to new government figures.

28 per cent? That surely puts into a new light all the rhetoric about how increased taxation on the wealthy is for the birds. But such rhetoric appears based on the idea that those in such categories have little agency other than to up sticks and leave. If so the SBP certainly shatters that illusion.

The top 1 per cent of income earners are paid an average of €403,000 per year, and will pay a total of €2.4 billion in income tax this year.
This means that, through clever tax planning and canny investment strategies, more than 21,500 high earners will manage to limit their tax bill to €40,000 on average.

And:

The new information also shows that the country’s top 10 per cent of income earners have managed to reduce their effective tax rate to 24 per cent. The top 1 per cent have an average annual income of €136,000 each.

And seeing as we were just discussing tax reliefs, note the following:

Anyone now earning more than €250,000 must pay at least 30 per cent in tax, while those earning more than €125,000 will be forced to pay between 20 and 30 per cent.
The data indicates that many individuals have still found a way to minimise their tax liabilities using legal tax relief schemes.

Of course they’re legal (well most of them), but whether they’re right is quite a different matter. Given the minimal nature of tax reliefs for those on lower incomes that’s very much open to question.
Naturally the SBP attempts to reframe this slightly:

Nonetheless, new data from the tax authority shows that high earners continue to prop up the Ireland’s income tax system. Some 22 per cent of all income tax is paid by the top 1 per cent of income earners, while the top 10 per cent contribute 61 per cent of the total income tax take.
Some 97 per cent of all take comes from just 50 per cent of income tax payers, while 820,000 income earners do not pay any income tax. This figures equates to 38 per cent of income earners.

This line of argument isn’t as impressive as the SBP might seem to think. Of course those on higher incomes ‘prop up’ the income tax system. They make many many multiples of the average and/or median wage. That’s the basic point about progressive taxation, that is indeed the basic point about a capitalist system with such stark income differentiation. And let’s not forget that it was not ever thus, that the differentiation, even in the relatively recent historical past was considerably lower, that income tax rates were significantly higher – and this through much of the boom period with drastic falls really only being seen post-2000. One could argue that this is yet another justification for a third band, or even more in our taxation system in order to increase progressively and to diminish the fairly iniquitous situation that occurs for those on the cusp between standard and higher rates.

And good to see Michael Taft quoted in respect of the piece:

“It shows the real effect of reliefs, schemes, allowances and credits,” said Michael Taft, economic advisor to the trade union Unite. “We have a high marginal rate of tax in Ireland, but it remains possible to reduce your effective rate quite significantly. The figures don’t include the USC, but they are still quite striking.”

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