How much do top earners pay in income tax

[Brendan Burgess]

I heard Dr Tom Healy of the Nevin Institute being interviewed on Morning Ireland today. He sounded very reasonable and very well informed. This is what he said: It starts at a[FONT=&quot]round 16.30 minutes into this podcast[/FONT] and lasts for about 5 minutes.

[FONT=&quot]The(increase in) tax would be mainly aimed at high income groups particularly households earning over €100,000 a year. Based on data provided by the Revenue Commissioners we know that there are c 430 ,000 tax cases whose gross income ,on average ,is in excess of €100,000 . The total tax take for them is €9 billion and the average effective income tax rate is 22.5%[/FONT]

[FONT=&quot]We propose raising that average effective tax rate by 1.5 percentage points that would yield just under €700m in extra [/FONT]tax revenue.

[FONT=&quot]Rachael English “So the bulk of the burden under your plans would fall on these people, those who earn over €100,000 a year?”[/FONT]

[FONT=&quot]Healy: “Yes, that is right. Exactly Yes” [/FONT]

Rachael English: "What about people who earn less than that. More than €50,000 but less than €100,000? "

Healy: In the long term, over the next 5 to 10 years, it is clear that Ireland has to increase its tax take and this must extend right down the income distribution ... we have recommended not hitting middle to below average income households at this point in the fragile economic situation and instead beginning at the top and addressing some of those [FONT=&quot] average effective tax rates which are surprisingly quite low and people don’t realise that. The marginal tax rates are very high but the average effective tax rate is quite low . [/FONT]

Listening to this, the thousands of low and middle income earners would be enraged. They know that they are losing far more than 22% of their income in deductions, so how come the rich are getting away with it?

I was very surprised that we had 430,000 people in Ireland earning over €100,000. 10% of the total population. What is that? Around 20% of the adult population?

Here is the source for this Page 23 of the [broken link removed]


[FONT=&quot]Table 9 Distribution of income tax paid by ‘tax cases’ –[/FONT]
[FONT=&quot]estimated position in 2012[/FONT]
[FONT=&quot]Top 1% Top 10% Top 20%[/FONT]

Number of ‘tax cases’ |21,650 |216,500 |433,000
Gross Income |€8,742 m |€29,600 m |€43,300 m
Average earnings |€403,760 |€136,710 |€100,000
Amount of income tax |€2.5 bn| €7.1 bn |€9.3 bn
Effective tax rate| 28.60% |23.99% |21.48%

[FONT=&quot]
[/FONT]
[FONT=&quot]Source: [/FONT][FONT=&quot]Parliamentary Question [/FONT]317445/12 (3 July 2012)
[FONT=&quot]Note: [/FONT][FONT=&quot]The figures for tax and effective tax rate only relates to income tax and do not take account[/FONT]
[FONT=&quot]of additional liability to PRSI and the Universal Social Charge. The figures are estimates[/FONT]
[FONT=&quot]from the Revenue tax-forecasting model using actual data for the year 2009 adjusted as[/FONT]
[FONT=&quot]necessary for income and employment trends in the interim. Gross Income is as defined in[/FONT]
[FONT=&quot]the Revenue Statistical Report 2010 (Revenue Commissioners, 2012). A married couple[/FONT]
[FONT=&quot]who has elected or has been deemed to have elected for joint assessment is counted as one[/FONT]
[FONT=&quot]tax unit.[/FONT]

 

[Brendan Burgess]

So let's look at this in some detail

No mention on the radio of PRSI and USC.

Between them, they add another 10% to the effective tax rate.

And self-employed people pay an additional 3% on incomes in excess of €100k

How come there are 433,000 "tax cases" earning in excess of €100,000?

There is nothing of the sort. The average earnings of the top 433,000 tax cases is €100,000


According to the Revenue...

111,000 Tax cases earned over €100,000 in 2011
A tax case is a single person or a couple which is jointly assessed.
There were 48,000 jointly assessed couples earning from €100k to €150k between them in [broken link removed]
So there are probably around 70,000 individuals earning in excess of €100,000.

The average effective income tax rate in 2011 for those tax cases who earned over €100,000 was 25.7 %.

And no mention of the impact on the average rate of the small group taking advantage of special tax reliefs

The average rate is artificially reduced by our policy of attracting in artists and musicians into this country, who would simply not be here if it were not for our tax exemption schemes. I don't know what impact they have.

We had various tax schemes to encourage investment in student accommodation, disadvantaged areas etc.

Most high earners did not take advantage of these schemes. The right strategy is to get rid of these schemes and these are being phased out.

 

[Brendan Burgess]

So what is the real effective tax rate? Here are the numbers for 2010

Table IT5 in the [broken link removed]

Amounts and effective rates of tax on specimen incomes, 2010

Actual total income|Single persons|One spouse working|both spouses working
€100,000|30%|26%|18%
€150,000|33%|31%|26%

Add in prsi and USC and we get

Actual total income|Single persons|One spouse working|both spouses working
€100,000|40%|36%|28%
€150,000|43%|41%|36%

Don't forget that Dr Healy is calling for a tax on those who earn "in excess of €100k" from 22.5% to 24%.

They are already paying between 10 and 20 percentage points more than he is proposing.

 

[Brendan Burgess]

So how much would an increase of 1.5 percentage points in the effective rate of income tax yield?

[FONT="]We propose raising that average effective tax rate by 1.5 % points that would yield just under €700m in extra [/FONT]

Raising the effective rate of tax by 1.5% could be achieved by raising the rate on all earnings in excess of €100k by 3%.

Billy Timmins of Fine Gael asked the Minister for Finance a similar question

To ask the Minister for Finance the estimated increase in tax revenue if earnings of €100,000 or greater were taxed at a rate of 50% on the portion of their income over €100,000;

To which the Minister replied

I am advised by the Revenue Commissioners that the estimated full year yield to the Exchequer, estimated by reference to 2012 incomes, of the introduction of a new 50% rate would be of the order of €490 million.

So raising the marginal rate by 9 percentage points would raise €490m.

Raising it by 3 percentage points would raise around €150m.


Another way of estimating it
The Revenue Commissioners estimate that raising the higher rate of tax by 1 percentage point would raise €205m in a full year. ([broken link removed])
Raising the higher rate by 1% would not be quite the same as raising the effective rate by 1%,but it would not be far off.
Most people on the higher rate are earning less than €100k, so raising it on those earning in excess of €100k would probably raise only €100m
So raising it by 1.5 percentage points would probably raise around €150 million.

Increasing the rates on the higher paid will not provide much additional income.

We need to raise rates on all levels of income.

 

[Brendan Burgess]

Useful sources of information

Revenue Statistical Report 2010
[broken link removed]

[broken link removed]Table IT 5 Amount and effective rates of tax on specimen incomes 2010

[broken link removed]
Distribution of number of incomes; gross income charged; tax paid by range of gross income - analysed over single and married

Answers to Dail questions

7 February 2012
Numbers; income and tax paid by detailed salary range for 2011 (estimated)
For example - 117 cases earned over €2m. They earned €1 billion between them and paid €345m tax or 35%

 

[MugsGame]

He was talking about household income, not individuals.

particularly households earning over €100,000 a year

But all your points still hold.

 

[T McGibney]

We're in the land of voodoo economics and spindoctorery here

From http://www.irishleftreview.org/2012...nomic-research-institute-neri-launched-today/

You may or may not have already heard or read about the [broken link removed] of the Nevin Economic Research Institute (NERI) yesterday morning, a new economic think-tank funded by a number of trade unions affiliated to the Irish Congress of Trade Unions. As a resource for the left, it is very welcome indeed.


NERI purpose is to provide information, analysis and economic policy alternatives, and is named in honour of Dr Dónal Nevin, scholar, trade unionist and socialist who gave a life of service to the common good, as described in the introduction to its quarterly publication, [broken link removed]. There is a website, NERI Institute which will be populated with plenty of very useful information and economic analysis in the coming months and years. One such is the [broken link removed], a regular downloadable one-stop shop of facts and figures about the economy, which will make it far easier to respond to spin and obscurantism of much of the economic comment coming from the media and political establishment.

 

[Brendan Burgess]

He was talking about household income, not individuals.



But all your points still hold.

Thanks Mugs

I am trying to figure out the implications of this distinction.

A single person household earning €150k pays an effective combined rate of 43%.

A married couple household earning a combined income of €150k pays 36%.
But is that not the same as saying that a single person earning €75k pays an effective rate of tax of 36%?

A married couple household where each earns €150k would be paying around 47% effective rate.

 

[Brendan Burgess]

I have done some further analysis of this

single people earning over €100k|14,280|28%
married with only one earning over €100k|23,538|27%
11, 393 were Married - both working earning over €200k| 22,786|26.5%
Total earning over €100k|60,604||27%

So 60,604 people earned over €100,000 in 2009 not, 430,000 as implied by Dr Healy

 

[orka]

The NERI work really is a poor piece of analysis. I’m not sure whether they have made a deliberate mistake or whether they know what they have done but are attempting to pass it off as a serious contribution.

As Brendan has identified above, when NERI refer to ‘those earning over 100K’, they mean ‘those in the group who earn, on average, 100K per household’. When you look at what this actually means, it is quite shocking that this could be a serious attempt to identify ‘the wealthy’.

So, the top 20% of households (by income) earn, on average, 100K. Fair enough, that is correct. However, this includes all households with incomes down to about 55K!!! So, two people working (and possibly paying childcare etc.) earning 27,500 each are in the group targeted by NERI as in the ‘top 20%’ who should pay more tax. It is laughable to say to a household on 55K: "we are targeting you because you are in the group earning, on average, 100K - sure, the group is balanced at the other end by people earning 10s of millions, but you're in there too". But that’s what the unions-sponsored NERI has done.

 

[Brendan Burgess]

Hi Orka

Your post and Séamus Coffey's analysis confused me. He clearly said on the radio this morning that it was aimed at people earning over €100,000.

However, the report says something else

[FONT=&quot]Table 10 Revenue impact of an increase of 1.5% on the[/FONT]
[FONT=&quot]effective tax rate of the top 20% of tax cases[/FONT]
[FONT=&quot]Top 20%[/FONT]
[FONT=&quot]Number of ‘tax cases’ [/FONT][FONT=&quot]433,000[/FONT]
[FONT=&quot]Gross Income [/FONT][FONT=&quot]€43,300m[/FONT]
[FONT=&quot]Average earnings [/FONT][FONT=&quot]€100,000[/FONT]
[FONT=&quot]Amount of income tax [/FONT][FONT=&quot]€9.3bn[/FONT]
[FONT=&quot]Effective tax rate [/FONT][FONT=&quot]21.48%[/FONT]
[FONT=&quot]Increased Effective tax rate [/FONT][FONT=&quot]22.98%[/FONT]
[FONT=&quot]Additional tax revenue [/FONT][FONT=&quot]€650m[/FONT]
[FONT=&quot]Reforming the income taxation system in this way would, based on the Revenue[/FONT]
[FONT=&quot]Commissioners data, generate an additional €650 million in income taxation revenue[/FONT]
[FONT=&quot]in 2013. It’s impact on the top 20% of tax cases would be to see their income taxation[/FONT]
[FONT=&quot]bills increases by an average of:[/FONT]
− [FONT=&quot]€1,500 per annum for the top 20% of tax cases;[/FONT]
− [FONT=&quot]€2,000 per annum for the top 10% of tax cases; and[/FONT]
− [FONT=&quot]€6,000 per annum for the top 1% of tax cases.[/FONT]
[FONT=&quot]Table 11 calculates the impact that this would have on two example high earning[/FONT]
[FONT=&quot]households within the top 20% of tax cases and includes in its calculations the PRSI[/FONT]
[FONT=&quot]and USC paid by the households. Following such a reform, a household on an income of[/FONT]
[FONT=&quot]€120,000 would pay a total of 34.69% of its income in income taxes, PRSI and the USC.[/FONT]
[FONT=&quot]Its disposable income would fall by €1,800 per annum from €79,866 to €76,266.[/FONT]

So, as you correctly point out, he is talking about increasing the tax take on married couples who earn €27,500 each. The unions will love that.

 

[orka]

My objection is to Dr Healy saying on Morning Ireland that 430,000 people/households are earning more than €100,000. That would be one in four of the workforce.

There was no need to do the amount of work I did to show that is completely wrong.

Brendan

He was actually correct in what he said - as you quoted above (post 1), he said that 430,000 earn, on average, 100K. But the actual meaning of that is lost on probably 99% of listeners. If you earn 10K and I earn 100K, on average we earn 55K - so when you are lumped in with me, two people (our group) earn, on average, 55K. It is such a load of horse manure - I would really love to know whether NERI knows it's rubbish or whether they actually think their analysis is insightful.

 

[orka]

He clearly said on the radio this morning that it was aimed at people earning over €100,000.

However, the report says something else
So, as you correctly point out, he is talking about increasing the tax take on married couples who earn €27,500 each. The unions will love that.

Yes, the report summary also clearly state that it is aiming at those earning 'over 100K' (no 'on average') - but their costing of the benefit includes those earning 'on average 100K'. I wish a wider audience could appreciate the nonsense behind a lot of the left-wing soundbites...

 

[Brendan Burgess]

Here is an example they use in the report:

Couple 2 earners on an income of €100,000
Income tax (after credits) €20,624.00 €20,624.00
Additional income tax of 1.5% in 2013 - +€1,500.00
USC €5,637.60 €5,637.60
PRSI €3,471.68 €3,471.68
Total Income tax + USC + PRSI €29,733.28 €31,233.28
Effective income tax rate 20.62% 22.12%
Effective overall tax rate (Income tax + PRSI + USC) 29.73% 31.23%
Disposable income €70,266.72 €68,766.72

So this is not someone earning over €100,000 - it is two people earning €100,000 between them or, on average, €50,000 each.

 

[orka]

Correct. It also bizarrely (for a union-sponsored piece) makes no allowance for the distinction between public/private workers. In your example above, net tax home will go from 70,266 to 68,766 (a 1,500 drop = 1.5% of gross); but a public sector worker is already down at a net of 63,586 and the costing will hit them with the same 1,500 reduction (1.5% of gross) bringing them to 62,086.

 

[Purple]

but a public sector worker is already down at a net of 63,586 and the costing will hit them with the same 1,500 reduction (1.5% of gross) bringing them to 62,086.

Giving an effective tax rate of 48% or more than twice what Dr Tom Healy claimed.

 

[Brendan Burgess]

Dr Healy gave the impression on the radio that they would be just taxing those "[FONT=&quot]whose gross income ,on average ,is in excess of €100,000"

He confirmed to the interviewer that the bulk of the burden would fall on those earning over €100,000 a year.

Radio interviews are difficult, and it's not easy to explain complex policies. But anyone listening to it would assume that only those earning over €100,000 a year would face this extra tax. But there is absolutely no confusion in what he has written:

The Executive Summary of his [broken link removed]confirms this:

[/FONT]

A targeted increase in revenue by one percentage point of GDP mainly through a narrowing of tax reliefs and credits for households with incomes in excess of €100,000 per annum;

[FONT=&quot]

And this is what he is saying on progressive-economy.ie
[/FONT]

Plan B would raise revenue starting with the highest income households (>€100K p.a.)

 

[DerKaiser]

Thanks for all the info Brendan, some very good posts from others as well.

My beef with this (and many other reports) is that they over complicate matters due to a lack of a deeper understanding of how tax works and then draw what are portrayed as self evident conclusions from nowhere.

In the same way Oscar Wilde lacked the time to write a shorter note, this report appears to lack the competence to arrive at a simple conclusion, so it chooses something complex instead.

As an example I looked at page 34. The first thing that irked me was that the only suggestion they could come up with involved significant reforms to the current tax structure i.e. credits that are currently fixed would now need to vary by income.

A combination of say reducing the standard cut off by €1k and increasing the top rate by 2% would probably achieve something quite similar in savings and would be as equitable.

I then noticed (unless my eyes deceived me) the 2013 numbers for the poor suckers on €120k don't add up somehow. An extra €1800 is being gouged from their disposable income, though I can't quite figure from where.

On page 32 there is a table that evidently suggests 'there is potential for Government to increase the income tax take from the highest earners in Irish society'.

It must be some table I thought, but was disappointed to find it contained only numbers on total incomes and income tax take, which suggest little.

The closest I came to seeing a conclusion was that an effective income tax of 29% (excluding 4% PRSI & 7% USC) was modest. It got me thinking as to what might be classified as appropriate or even excessive. To be honest I was quite scared that marginal rates (including PRSI & USC) of 52% and total rates of 40% are viewed as modest.

It's past 1pm and I'm on my lunch break meaning the 3.5 of the 4 hours of the work I do between now an 6pm are my contribution to the exchequer today. A modest effort I'm sure you'll agree!

The broad thrust of this report is to trivialise the impact of their proposal through questionable arguments. In addition to my point above (trivialising a 40% effective tax rate), the report glosses over the fact that most of the taxpayers facing these hikes earn much less than €100k and may have high fixed expenditures that leave little scope to pay more.

 

[Brendan Burgess]

Séamus Coffey has challenged the Nevin Institute's figures on the TASC blog

I have written a piece for tomorrow's Sunday Times on the topic.

 

[Brendan Burgess]

The full conference papers are

I have extracted the tax bits in the attachment to this post

Here is the ESRI Press Release

"Taxes on Income: Ireland in Comparative Perspective"
Tim Callan, Claire Keane, Michael Savage and John R. Walsh (ESRI)
Ireland takes a smaller share of national income in tax than most EU-15 countries, according to new ESRI research. This is true even when taking account of recent Irish tax increases and of how precisely multinational profits affect the Irish tax base.


The share of tax in national income in Ireland remains well below that in countries such as Germany, Austria and the Scandinavian countries. Much of the gap arises because these Northern European countries have higher taxes on income – whether in the form of income tax, employee social insurance contributions, or employer contributions.


This is not because of higher tax rates on the top slice of income. The extra tax revenue in these countries comes from applying higher income tax rates lower down the income range, so that they are paid by low, middle and high income earners alike.


Speaking at the conference, Professor Tim Callan said “There is much debate about the balance between taxes and expenditure in the run-up to annual budgets. Evidence on choices other countries have made as to long-run levels of expenditure and tax helps to inform this debate and bring a longer-term perspective to bear on the issues involved”.