# Myth: The rich don't pay much income tax



## Brendan Burgess (30 Mar 2012)

This comes up time and time again. Why should the poor pay any tax as the top paid people are paying no taxes. Ronan Lyons did a great piece a few years ago. I think it would be useful to set out the facts.

This comes from Table IDS1 of the Revenue [broken link removed]  for 2009 



|income|Tax|effective tax rate|including prsi & levies
Earning less than €25,000|€m 12,138|€m 129|1%| 0% to 5%
€25k to €50k|€m 24,374|€m 1,720|7%|16%
€50k to €100k|€m 25,694|€m €3,849|15%|25%
€100k +|€m 19,790|€m 4,915|25%|35%
Total|€m 82,000|€m 10,616|13%The average effective rate of tax on income was 13% 

People earning less than €25,000 paid an average income tax rate of 1%
People earning over €100,000 paid an average income tax rate of 25%


*PRSI/Income Levy/Health Levy - examples
*


 Salary |rate
14,000|0%
25,000|5%
100,000|9.5%


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## Firefly (30 Mar 2012)

Brendan,

For fear someone will complain about this, I think you should rename the title of this thread to:

"Myth: The rich don't pay much _Income_ taxes"

Firefly


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## Firefly (30 Mar 2012)

Brendan Burgess said:


> This comes up time and time again. Why should the poor pay any tax as the top paid people are paying no taxes. Ronan Lyons did a great piece a few years ago. I think it would be useful to set out the facts.
> 
> This comes from Table IDS1 of the Revenue [broken link removed] for 2009
> 
> ...


 
I must say, I am surprised at the figures for the 50-100k bracket as 15% seems very low. I can appreciate those earning >100k paying 25% tax (or even less) as they would have the means to employ tax accountants and the like, but I find it hard to identify that the average 50k-100k person only pays 15% in taxes, or am I reading this all wrong?


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## thedaras (30 Mar 2012)

Hi Brendan, thanks for posting that,its about time some people realised that those who earn more contribute so much moreeople earning over €100,000 paid an average income tax rate of 25%..
Either way those who earn over 100k are hardly "Rich"..
Its all relative really as I know people on the dole who think anyone who has a job is rich..People who earn less than others always think of others as rich..perhaps the thread could be called "Those who earn more pay most of our taxes"..


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## Brendan Burgess (30 Mar 2012)

Number of tax payers at different rates



Exempt|968,000
top rate of 20%|874,000
top rate of 41%|309,000
Total taxpayers| 2,151,000
This seems strange. Only 14% of taxpayers paid at the top rate.


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## Brendan Burgess (30 Mar 2012)

Firefly said:


> I must say, I am surprised at the figures for the 50-100k bracket as 15% seems very low. I can appreciate those earning >100k paying 25% tax (or even less) as they would have the means to employ tax accountants and the like, but I find it hard to identify that the average 50k-100k person only pays 15% in taxes, or am I reading this all wrong?



I am surprised at some of the figures myself, so if someone wants to verify them or correct them, I would welcome it.

In 2009, a married person earning €100,000 paid 26% income tax according to www.taxcalc.eu 

A married person earning €50,000 paid 10% of their income in tax.
Given that there were more on €50,000 than €100,000, it seems about right.


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## Brendan Burgess (30 Mar 2012)

There is a myth that all high earners use tax schemes to avoid paying tax. 

I think that arises because the Revenue publishes figures for those who availed of tax schemes.  The media incorrectly report these as all high earners. 

Has anyone got the stats on the tax schemes?

For example, of the 110,000 people who earned over €100,000 in 2009, how many availed of tax schemes?


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## dereko1969 (30 Mar 2012)

Surely the biggest "tax scheme" is putting money into your pension! Given the additional breaks given to higher earners this is of greater benefit to them. Whilst taxcalc gives an effective figure of tax how much is actually coming in from those people?


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## DerKaiser (30 Mar 2012)

I think you have to include PRSI & USC to get a good picture - they'll add 11% onto all the rates quoted.

The basic point here is that there are large sections of society who don't pay much income tax - be it illegally (the black economy) or legally (based on a relatively generous thresholds).

Many will argue that extra taxes should be raised from those on higher incomes. 

Fianna Fail actually did this, the USC being the one genuine measure so far to effectively reduce the deficit. Fine Gael aim to close the deficit slightly using non-income related taxes in 2012. On balance though, over the last number of budgets, most of the deficit reductions have come from income tax hikes from those earning above €30k as opposed to income tax revenues from bringing additional people from lower wage levels into the tax net or even raising revenue from non-income taxes.


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## circle (30 Mar 2012)

Firefly said:


> I must say, I am surprised at the figures for the 50-100k bracket as 15% seems very low. I can appreciate those earning >100k paying 25% tax (or even less) as they would have the means to employ tax accountants and the like, but I find it hard to identify that the average 50k-100k person only pays 15% in taxes, or am I reading this all wrong?


 
Of the 378,862 'tax units' earning between 50,000 and 100,000, 188,451 (about half) are actually married couples with both people working, so what looks like 1 person earning 60,000 is actaully two people earning 30,000.


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## DerKaiser (30 Mar 2012)

dereko1969 said:


> Surely the biggest "tax scheme" is putting money into your pension! Given the additional breaks given to higher earners this is of greater benefit to them. Whilst taxcalc gives an effective figure of tax how much is actually coming in from those people?


I have estimated elsewhere based on older figures, following the removal of PRSI relief and the collapse of new money into the pensions market that about €0.8bn of reliefs would have been availed of in 2011 (I'd love to see actual figures) suggesting an average tax rate reduction of under 2% of income for the €50k+ category.

As an aside, I'd be pretty confident that most of that €0.8bn will make its way back into the taxation system in the future. The richer those availing of it, the more true this will be.


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## Firefly (30 Mar 2012)

circle said:


> Of the 378,862 'tax units' earning between 50,000 and 100,000, 188,451 (about half) are actually married couples with both people working, so what looks like 1 person earning 60,000 is actaully two people earning 30,000.


 
That could explain it alright. (Otherwise I'll be having a chat with my accountant!).


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## newirishman (31 Mar 2012)

Brendan Burgess said:


> Number of tax payers at different rates
> 
> 
> 
> ...



Would think it is strange, is the avg ind wage not still 35K or thereabouts?

However, as one of the 309,000 in the top rate I have to say it feels me with a bit of rage to see that 968,000 people do not pay any tax one income. Fairness?


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## demoivre (10 Apr 2012)

More analysis from Ronan Lyons on paying tax in Ireland.


Moderator edit: Do Ronan's quiz on income tax before reading the above article


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## ontour (10 Apr 2012)

Ronan Lyons has updated his commentary on tax in Ireland.  Including VAT is very interesting.  The richest 10% of households pay almost 40% of all receipts from income tax, VAT, USC and PRSI.  The tax rate on wealthiest households (38%) more than twice that on  average households (16%).   Poorer households  have to spend all their income (and then some), and all that spending is  liable for VAT, their effective tax rate surpasses all other income  groups except the wealthiest.

So the people at the bottom certainly appear to wear an unfair burden of taxation but it is not the people at the top who are escaping paying their 'fair share'.

<crossed with previous posts>


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## Brendan Burgess (10 Apr 2012)

> Poorer households  have to spend all their income (and then some), and *all that spending is  liable for VAT,*



I have emailed Ronan about this as I don't understand it. 

I had assumed that people earning €8,400 a year would spend most of it on food and rent both of which are VAT free. 

How can they spend 30% of their income on VAT when the VAT rate is 23% ? 

Brendan


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## Brendan Burgess (10 Apr 2012)

Ronan has now corrected that graphic.

Brendan


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## newirishman (10 Apr 2012)

Brendan Burgess said:


> Ronan has now corrected that graphic.
> 
> Brendan



Thanks for that Brendan, makes more sense now.


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## Protocol (20 Apr 2012)

The rich do pay a lot of income tax, as they have massive incomes.

There is massive income inequality in Irl, so nobody should be surprised that the rich pay so much of the income tax.

Many, many people have income so low, that they can't and shouldn't pay income tax.

Indeed, though the rich pay a lot of income tax, it can be argued that they don't pay enough.


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## Protocol (20 Apr 2012)

Seamus Coffey, UCC, has a good blog piece on the level of income inequality in Irl:

http://economic-incentives.blogspot.com/2012/04/distributional-effects-of-direct-taxes.html

Here is a quote:

"Ireland has by far and away the greatest level of inequality when it comes to original income. The level of original income in the bottom quintile is more than 15 times lower the level of original income in the top quintile. The next highest country is Lativa at 11.8 with a weighted EU average of 7.9."


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## Protocol (20 Apr 2012)

The level of income inequality can be seen in the SILC reports from the CSO:

PRELIMINARY
[broken link removed]


FULL REPORT
[broken link removed]


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## DerKaiser (20 Apr 2012)

At least we've made massive strides in terms of addressing satellite dish deprivation (page 60)


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## Brendan Burgess (20 Apr 2012)

DerKaiser said:


> At least we've made massive strides in terms of addressing satellite dish deprivation (page 60)



Good one!

It would make a great element of a satirical piece on the issue. 

Brendan


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## orka (20 Apr 2012)

Protocol said:


> Seamus Coffey, UCC, has a good blog piece on the level of income inequality in Irl:
> 
> http://economic-incentives.blogspot.com/2012/04/distributional-effects-of-direct-taxes.html
> 
> ...


Why use original income as your measure (apart from the ‘omg we are the worst’ impact)?  Original income is a poor indicator if you are trying to discuss income inequality – it could just as easily (and probably is in the case of Ireland) be caused by a high unemployment rate and/or a generous benefits system.  Original income is income excluding cash benefits  – in Ireland’s case 53% of the bottom quintile’s total gross income is provided by cash benefits compared with an EU average of 24%.  So in using original income as your measure, you are only looking at 47% of the bottom quintile’s total income – hardly fair.
The article goes on to allow for cash benefits and direct taxation and reaches this conclusion “The concentration coefficients show that, in 2007, Ireland had a benefit system that was just as progressive as the EU average and *a direct tax system which was the most progressive*”.  But also “On the other hand Ireland had the joint-third lowest level of direct taxes with only Cyprus and Slovakia taxing less”.  So we have the most progressive tax system but overall we don’t pay enough – which just about sums up the big problem in the Irish income tax system – the rich pay their share but lower and/or middle income levels do not.


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## Purple (21 Apr 2012)

orka said:


> So we have the most progressive tax system but overall we don’t pay enough – which just about sums up the big problem in the Irish income tax system – the rich pay their share but lower and/or middle income levels do not.



You can't expect public debate to in informed by silly things like... facts... and the truth. Cop on.


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## oldnick (21 Apr 2012)

One "fact" that is ignored in this debate is that the lower-middle income groups (not the very poorest) actually pay more than in any of the figures shown so far. Not perhaps in taxes but in many other ways.

The figures do not show that out of most western EU states the Irish pay the highest medical costs for perhaps the lousiest public health service . (Medical costs means visits to doctors, consultants, dentists, prescriptions, hospitals etc. )

Whilst the very poorest pay no fees those earning quite low salaries in 20s and 30s pay far more than their opposite numbers in France,Germany etc etc for medical care. Even the Brits with their moans about the National Health Service pay so very little compared to us-and for far better service.

Take commuter travel costs - subsidised in most west EU states. Paddy may pay €30 weekly to get to work. Pierre or Pedro pay half of that -and on a more extensive and efficient commuter network. And if Paddy buys a car he'll pay far more than Pedro due to higher taxes.

There are many examples where you can't just compare wages and taxes with other countries -and then completely ignore other costs of living and the services available.


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## Chris (23 Apr 2012)

Oldnick, you are leaving out an important fact about the various items you list in the UK, France and Spain. 

While William in England doesn't pay after he sees his GP he pays for this service in advance through taxation, whether he goes to the GP or not.

When Pierre and Pedro spend less on their weekly travel passes at the ticket machine they pay the difference in advance also through taxation whether they use the system or not.

There is no such thing as a free lunch when government is doing the subsidising.


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## Brendan Burgess (23 Apr 2012)

Chris said:


> There is no such thing as a free lunch when government is doing the subsidising.



Is it not the case that some people are actually getting a free lunch but that someone else is paying for it?  The free travel for pensioners in Ireland is free to them. The taxpayers are paying for it though.


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## Purple (23 Apr 2012)

Brendan Burgess said:


> Is it not the case that some people are actually getting a free lunch but that someone else is paying for it?  The free travel for pensioners in Ireland is free to them. The taxpayers are paying for it though.



Indeed, and as you pointed out in a different thread the biggest beneficiaries of the bank guarantee were Irish depositors and pensions holders. Since pensioners account for the largest proportion of this group it seems that it is yet another subsidy the elderly are getting.

How about another thread titles "Fact - Pensioners are not paying their fair share while at the same time getting bailed out more than bankers or developers"?


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## Chris (3 May 2012)

Brendan Burgess said:


> Is it not the case that some people are actually getting a free lunch but that someone else is paying for it?  The free travel for pensioners in Ireland is free to them. The taxpayers are paying for it though.



I guess it depends on the pensioner, but for most I would say that they are net receivers of funds. Some wealthy pensioners may well pay more in VAT and other taxes than they receive in direct payments and subsidies from the state .

You are absolutely right that some people do get more than they pay for, and I should have pointed out that there is no free lunch for everyone, as is sometimes insinuated by comments like the NHS being free for everyone.


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## Protocol (22 May 2012)

I have done some basic analysis of the Revenue Income distribution stats for 2009.


I looked at the 109,109 cases with gross income exceeding €100k. I split them into four groups and calculated the:


· Average gross income
· Average tax paid
· Average effective tax rate 

All data from here:
http://www.revenue.ie/en/about/publications/statistical/2010/income-distribution-statistics.pdf


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## Protocol (22 May 2012)

First group earning from 100k to 150k.

Cases = 70,116

Av income = 119k

Av tax paid = 25.5k

Av effective tax rate =* 21.5%*


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## Protocol (22 May 2012)

Second group earning from 150k to 200k.


Cases = 18,383


Av income = 171k


Av tax paid = 42k


Av effective tax rate =* 24.8%*


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## Protocol (22 May 2012)

Third group earning from 200k to 275k.


Cases = 9,933

Av income = 232k

Av tax paid = 61k

Av effective tax rate =* 26.4%*


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## Protocol (22 May 2012)

Fourth group earning from 275k upwards.

Cases = 10,677

Av income = 563k

Av tax paid = 163k

Av effective tax rate =* 28.9%*


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## Chris (23 May 2012)

Excellent summary Purple. Makes you wonder how people can argue that these people are not paying their fair share when 50%, or thereabouts, pay no income tax at all.

As an average income household I would like to extend my sincere gratitude to those high income earners who are burdened with way more than their fair share of taxes.


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## Protocol (28 May 2012)

Loads of people pay zero income tax because their incomes are low.

Students, part-time workers, etc., earning 10k-15k.

Maybe income tax should kick in earlier, I'm not against that.

*But people earning over 275k paying 28.9% seems too low to me.*


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## DerKaiser (28 May 2012)

Protocol said:


> Loads of people pay zero income tax because their incomes are low.
> 
> Students, part-time workers, etc., earning 10k-15k.
> 
> ...


 
Is that just income tax i.e. at the 20% or 41% rate? 

Would you add 4% PRSI to that rate to bring it to 32.9%?

Is the USC included?  If not it would bring the tax take to just under 40%


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## Purple (28 May 2012)

DerKaiser said:


> Is that just income tax i.e. at the 20% or 41% rate?
> 
> Would you add 4% PRSI to that rate to bring it to 32.9%?
> 
> Is the USC included? If not it would bring the tax take to just under 40%


 
Yea, that's more like it.


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## Protocol (28 May 2012)

Yes, just income tax.

No, PRSI was not paid on all income, so the effective tax rate would not rise by 4%.

No such thing as USC in 2009.


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## DerKaiser (28 May 2012)

Protocol said:


> No, PRSI was not paid on all income, so the effective tax rate would not rise by 4%.
> 
> No such thing as USC in 2009.



Welcome to 2012, where the PRSI ceiling does not exist, USC applies and tax reliefs relating to PRSI & USC have been removed.


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## orka (30 May 2012)

The health levy applied in 2009 and was applicable to all income; it was only PRSI that had a ceiling for payment.

When looking at the revenue stats, there's a couple of things to bear in mind: the income refers to cases/tax units which could be a married couple so a 275K unit income could be 2 people earning 137.5K each.  Also, the tax is net of any tax breaks, pension contributions etc. - so someone could (and should) be paying their full scheduled tax but then getting offsets/tax breaks.  

I have dug out my 2009 tax spreadsheet to see what actual taxes should have applied:

A single person on 275K had an effective deduction rate of 44.9% ~ 36.9% income tax and 8.0% PRSI, health levy and income levy.

A married couple with a combined 275K income had effective deductions of 43.6% (35.5% income tax) and a married couple, single income of 275K had an effective deduction rate of 40.9% (32.8% income tax).

A single person earning 500K had effective decuctions of 47.3% (38.7% income tax).

I have no doubt that the revenue numbers are correct so it looks like the apparent 'underpayment' is due to tax breaks, pension contributions etc. not because tax rates are too low for 'the rich'.  I personally would have no problem with ALL tax breaks being removed so that everyone just pays the scheduled amounts per the tax rates and bands - not least because it would reduce calls to tax 'the rich' more as the structure of the revenue's tax statistics is not that well understood.


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