Taxing times… November 1, 2012
Posted by WorldbyStorm in Economy.trackback
Interesting piece by Ian Kehoe in the SBP on tax rates in the state. In a piece which asks ‘are the wealthy paying enough tax?’ he notes that effective tax rates have increased and not insignificantly over the past number of years.
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 move seemed to be working, but only just. Figures published earlier this year showed that the state’s top 20 per cent of income earners will pay an effective tax rate of just 21 per cent this year.
However he also notes that:
…the figure did not include PRSI or the universal social charge (USC). Boyd Barrett, however, asked the department to include both PRSI and PAYE in its new calculations.
And:
In essence, the data shows that the double whammy of abolishing tax shelters and the new USC has ensured the so-called ‘wealthy’ are now paying significant tax.
According to the data, the top 1 per cent of income earners pay an effective tax rate of 38 per cent.
There are 21,650 people in this bracket, with average earnings of €403,760. This 1 per cent of earners paid 18 per cent of all income tax, USC and PRSI.
That’s interesting in and of itself, but what of that those in the top 20 per cent of taxpayers – those on €100,000 or more now ‘had an effective tax rate of 30 per cent’. But for the top 10 per cent ‘the effective tax rate moved down slightly to 33 per cent.’ That’s fascinating isn’t it? So the top 1 per cent pay 38 per cent, the top 10 per cent overall pay 33 per cent and the top 20 per cent pay 30 per cent.
As always there are also other aspects. That top 10 per cent?
There are 216,500 [This is an error as far as I can make out, earlier in the article it is quoted as 21,650] people in this bracket and they contributed 53 per cent of all income tax, PRSI and USC that the state takes in.
That too is an intriguing stat suggesting that the general level of wages in the economy are remarkably low by contrast. Curious too about the effective tax rate of the top 10 per cent moving down slightly.
Another thought provoking point is the following:
The top 20 per cent figure is an important barometer as the average salary for this bracket is €100,000 – the figure at which many politicians feel a new third rate of tax should kick in.
I wonder is there any general sentiment directed towards that goal in the Irish polity currently, outside some on the broader left and SF (IIRC).
In an accompanying article by Brian Keegan of Chartered Accountants Ireland the following point is made:
It is very clear from the official response that the Irish tax system is truly progressive – that is to say that people on higher incomes pay a heavier proportion of tax than people on lower incomes. The headline item provided by Minister for Finance Michael Noonan to Boyd Barrett’s question is that we have a lot of households – about 433,000 – earning on average €100,000, and that these citizens pay 71 per cent of all the personal taxes collected.
At the other end of the scale, households with an income of less than €30,000 per annum – about 380,000 – pay 6 per cent of all the personal taxes collected.
But one could surely query whether the term ‘truly’ is correct in the opening sentence. Because the disparity between the impact of taxation on various groups is in itself quite striking…
Households on incomes below €30,000 lose less than 10 per cent of their income to the exchequer, households on incomes above €100,000 lose more than 30 per cent, with the tax take increasing in small steps for the people in between.
10 per cent of my income is an awful lot more in functional terms than 30 per cent of the income of someone on €100k. But note also the way in which non-income taxes are ignored entirely, taxes which in the main bear down on those with lower incomes disproportionately. And it’s that evasiveness that makes the following statement difficult to credit.
While these figures may raise issues as to how income is distributed, they should allay concerns that the tax system is in some way skewed in favour of higher earners.
By the by, Keegan also gets a lash in at the Nevin Institute for implicitly ‘poorly advised public comment and suspect research’.
Does this include tax on unearned income, dividends, interest, bonuses, etc
Hah, good question!
The big distortion – as the post mentions – is the ignoring of non-income taxes.
It’s no surprise that we have a progressive system. As bad as things are, that much was always true. The question is, is it progressive enough? And to answer that question, we have to include the affect of all taxes.
The other related issue is income inequality. Too many are on low income, and are underpaid by European standards as Michael Taft has shown.
Pat Kenny on Frontline (we know what bracket he is in) is fond of proclaiming that the top earners pay the vast bulk of the taxes, what I would like to know is not what they pay in taxes, but what is their % of the national income? It seems most of our economists and media do not like to provide these figures…I wonder why??
Very interesting question you have there.
A new counter-offensive is under-way – that most tax breaks have been eliminated so there is little revenue to be gained from increasing the effective tax rate. There are serious problems here. First, Revenue data excludes a number of income sources and expenditures: profits from certain activities that are exempt, pension contributions, etc. This reduces the level of income recorded under higher income groups in particular.
Second, the restrictions on tax relief for higher income earners (which creates a minimum tax rate) is not comprehensive. Only certain tax reliefs are included. Further, for the minimum tax rate to kick-in, a taxpayer must have over €80,000 in tax reliefs.
The EU Survey on Income and Living Conditions reports the effective tax rate for the top 10% is only 22 percent (for 2010). While this is a self-reporting survey, it contrasts with the patchy Revenue data which shows an effective tax rate of 33 percent.
The issue isn’t how progressive our system is (income tax is progressive, despite the holes). The issue is that progressivity is undermined by the plethora of reliefs, allowances and exemptions which, for the most part, only the higher income groups can access.
I read an article somewhere (linked here?) from a German economist that claimed that if Ireland adopted Germany’s tax rates (NOT the highest in the EU) it could largely cure its financial woes. Sadly I cannot find the link now. Other, successful EU economies, Finland, Scandinavia, have even higher rates of course.
Not this one from Michael Taft?
http://notesonthefront.typepad.com/politicaleconomy/2012/07/bathing-the-rich.html