# People's opinions of a third income tax rate?



## Protocol (20 Apr 2007)

What would people think of a third income tax rate?  Say three rates: 20-30-40?

The UK have 3 rates, the USA have 6 rates.

The advantages are:

(1) more progessivity in the tax system

(2) tax reliefs could be given at 30% to everybody, not at 20/41 to different groups

(3) you wouldn't suddenly jump from paying a reasonable 20% to a penal 41%.  You would move up a bit to 30%, and if your income increased by a lot, then to 40%

(4) overtime, or extra work, would be more attractive to a lot of people


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## ClubMan (20 Apr 2007)

Surely you'd need to cost this against the budget for Government expenditure?


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## Aisling2323 (20 Apr 2007)

*Moderator note: *post removed - please keep rants in _Letting Off Steam _when you are able to post there.


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## Protocol (20 Apr 2007)

Clubman, the proposal would be designed to be revenue neutral.


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## Aisling2323 (20 Apr 2007)

ok i'l, post again - basically, this is a good idea - FG proposed a third rate of tax in 1999 but it was rejected - i think they wanted the rate at 33 per cent. i think it's a good idea as you are right - it would lower the marginal rate in a progressive taxation system  - also it could be a brilliant alternative to individualisation - probably it would cost the same as individualisation - i remember my husband telling me that at the time in 1999 individualsiation was costed the same as the introduction of a third rate (can't remember figure) these days individualisation is costing much much more, but anyhow, its a good suggestion .. (are you going to delete this post as well now??)


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## ClubMan (20 Apr 2007)

Protocol said:


> Clubman, the proposal would be designed to be revenue neutral.


Is it?


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## Protocol (20 Apr 2007)

What I mean is that the changes could be designed to be revenue neutral.


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## shanegl (20 Apr 2007)

One major disadvantage is complexity. Many people in this country are already financially illiterate.


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## Aisling2323 (20 Apr 2007)

i'm absolutely in favour of a third tax rate

am i allowed to say three cheers to FG and Labour for rowing back on tax individualisation (a little bit) 


Three cheers for the rights of a family to make their own decision - if FG and labour get elected

a third rate would be a super way of ending tax individualisation but also conceding that FF have a good point as regards lowering the marginal rate ..


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## ubiquitous (20 Apr 2007)

Protocol said:


> (4) overtime, or extra work, would be more attractive to a lot of people



This was the precise reason why the middle rate was abolished in the early/mid 1990s. People whose earnings are at or near a tax band threshold are disincentivised from earning more for fear of going into a higher tax band. The abolition of the middle rate was designed to prevent this happening at two different levels of income, and succeded in doing so. I doubt if anyone wants reintroduce the anomalies that were got rid of back then.


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## Aisling2323 (20 Apr 2007)

ubiquitous said:


> This was the precise reason why the middle rate was abolished in the early/mid 1990s. People whose earnings are at or near a tax band threshold are disincentivised from earning more for fear of going into a higher tax band. The abolition of the middle rate was designed to prevent this happening at two different levels of income, and succeded in doing so. I doubt if anyone wants reintroduce the anomalies that were got rid of back then.


 
are you sure? if i was earning 33,500 as a single person do you really think i'd worry about going into the higher rate if i was offered overtime worth 2k? Would I turn down the overtime, worth some net 1,300 Euro in order to avoid the higher rate? Of course not!


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## shnaek (20 Apr 2007)

How about a single taxrate for everything? Set it at we'll say, 20%. Then we could remove all tax loop-holes, and everyone would be happy!!


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## Aisling2323 (20 Apr 2007)

shnaek said:


> How about a single taxrate for everything? Set it at we'll say, 20%. Then we could remove all tax loop-holes, and everyone would be happy!!


 

don't you think the rich would get richer and the poor poorer? how would they fund public services?


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## shnaek (20 Apr 2007)

Aisling2323 said:


> don't you think the rich would get richer and the poor poorer? how would they fund public services?



Some argue that a flat rate is unfair. It was the norm before WW1. Either way you can look at the arguments here:

http://en.wikipedia.org/wiki/Flat_tax

and decide for yourself.

It will be interesting to see if Germany adopts this system, as there is debate on it there at present. Many Eastern European countries have adopted the system, but it is too early yet to say whether it has been 'successful' or not.


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## Aisling2323 (20 Apr 2007)

I read your link and would agree with Gordon Brown where he says:

'The millionaire to pay exactly the same tax rate as the young nurse, the home help, the worker on the minimum wage"

It would make the rich richer - which makes me wonder  - why haven't the PD's put this forward??


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## shnaek (20 Apr 2007)

You read the article in less than 3 minutes? Fair play!


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## Aisling2323 (20 Apr 2007)

anyhow, as regards the third tax rate - that would be fair,  it would be progressive, it would allow for a much fairer family tax system in this country. it would not trap spouses in the workforce or trap them in the home.

Another possibility is to introduce the French system. In France the tax credits are multiplied by the number of dependants. A spouse is worth 1.0 and each child is valued at 0.5. A 'base credit' or something like that is applied to all singles with no dependants. You multiply that base credit by the number of dependants .. 

what ya think? fairer than Ireland anyway ..


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## Aisling2323 (20 Apr 2007)

i read selectively ..


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## ubiquitous (20 Apr 2007)

Aisling2323 said:


> anyhow, as regards the third tax rate - that would be fair,  it would be progressive, it would allow for a much fairer family tax system in this country. it would not trap spouses in the workforce or trap them in the home.


Problem is that the history has shown us that a third tax rate is not exactly fair and it does indeed trap spouses in the home (or at least disincentivise them from working or earning more at certain levels of family & personal income). I don't know if you were in the workforce in the first half of the 1990s but if you were I'm not sure you would be that anxious to return to the old way of doing things.


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## BillyNoMates (20 Apr 2007)

To be financially neutral...
the following would need to take place.
some people who currently pay 20 percent would have to pay 30 or 33%
some people who pay 41% percent would get to pay some tax at 30 or 33% instead of 41%.
I don't think society would gain by this.
your asking the first group to basically pay a little more tax while
the last group pay a little less.
Tax should be simple and everyone should know where they stand in
relation to it. I think our 2 rate system is simple and fair enough.


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## Aisling2323 (20 Apr 2007)

look, almost anything would be fairer than individualisation  (or a strict aggregation system that pushes married income into higher rates and effectively penalises marriage). I'm all for fairness. Whatever is the fairest system i will support. Perhaps you have a point about the third rate in that sense. However I want to see something fairer than what we have at the moment - it is unfair that the government is pushing me out to work when i don't want to - i feel a third rate (and individualisation abolished) would at least allow me the option of staying or going


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## shanegl (20 Apr 2007)

Individualisation has nothing to do with a third tax rate.


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## Aisling2323 (20 Apr 2007)

Not if you can't use lateral thinking. But then most men can't (my husband included  )

Of course it does. one of the principal arguments in favour of individualisation (for instance from Sean Fleming TD last night on Prime Time) is that individualisation lowers the marginal rate and allows a stay at home spouse to join the work force more easily. This is due to the large gap between the two tax rates, 21 per cent difference. With a third rate, at say, 32 per cent a spouse could join the work force at a lower marginal rate. That would abolish the principal reason for tax individualisation. This was the FG reply to tax individualisation back in 1999 and Charlie McCreevy appeared to like the idea, in fact he said he would reconsider it - but he never did. Instead we got individualisation .. more's the shame


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## gipimann (20 Apr 2007)

Protocol said:


> The UK have 3 rates


 
Gordon Brown, in his recent budget announced the abolition of the lowest (10%) tax rate, leaving 2 rates of 20% and 40%.

Persons who had some of their salary taxed at 10% will now be taxed at 20%. An adjustment to tax credits is expected to compensate those who will pay more tax as a result.


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## triplex (23 Apr 2007)

i suggested this to an 'economist' and he laughed.. i think it's an excellent idea, but that the earned income threshold should be €100,000 at the highest rate - either way, both tax bands and thresholds should reflect true economic performance - ie, be adjusted in times of booms and busts...

cowen doubled mortgage interest relief, yet left the term for 7 years, when he should also have increased the term.. at least to 10 years...


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## room305 (23 Apr 2007)

I missed the start of this debate but it sounds like a horrible idea. I've never been convinced of the need for even two tax rates. A flat rate of tax is much fairer.

The government should be constantly seeking to reduce this rate, to remain as small a portion of the economy as possible. Nothing nullifies an economy as much as the distortion created by an overly large government.


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## Protocol (24 Apr 2007)

One single flat rate of tax *is not fairer*.  It is *regressive*.

More tax rates are *more progressive* and fairer.


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## shanegl (24 Apr 2007)

A single tax rate is proportional, not regressive.


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## room305 (24 Apr 2007)

Protocol said:


> One single flat rate of tax *is not fairer*.  It is *regressive*.



If I had suggested that there should be two rates of tax 40% and 20% with the 20% rate levied on those who earned more than €100k a year and 40% on those who earned less, that would be regressive.

What is the justification for penalising people when they earn more? It makes them disinclined to work harder or strive for a better job if the government is going to confiscate half of the increase. This means companies need to offer higher wages to tempt people to move or accept promotions, further reducing our competitiveness.



Protocol said:


> More tax rates are *more progressive* and fairer.



So why stop at three? Why not have one hundred different rates depending on income and we'll have the fairest system in Europe, if not the world?


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## Purple (24 Apr 2007)

On balance I am happy enough with the tax system as it is but I can see the case for a flat rate. There is only so much that one person or family can consume in goods and services offered by the state. Why should someone earning €10 million pay over €4 million in tax? Their contribution to the exchequer is far higher than anything they could ever take back. It seems unfair. 
If we set the ceiling for taxable income (the rate above which no tax was collected) at say ten million we could attract some of the super rich from around the world, those that don’t like Monaco. We have built our economy by stealing other countries corporation tax; why not steal some of their income tax as well? 
We could also remove some of the tax incentives that upset so many people. 
I started paying tax as a first year apprentice; with a gross weekly income of IR£78 I paid £14 in tax and PRSI. I went onto the higher tax band, then 48%, as a third year apprentice. PRSI was on my entire income and was 9% (plus a health or employment levy). Our current system is much more progressive and equitable. Ubiquitous is completely right and this is another ill thought out populist policy from FG (my opinion, not his). I hate to admit it but if they get in I hope Labour get Finance, FG have lost the plot.


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## Brooklyn (24 Apr 2007)

I'd be in favour of a third tax rate, but at the top.  Once your income puts you into the super-rich bracket I don't think you should be paying the same rate as people just above the average industrial.

So obviously I'd say no way on the flat tax.


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## Purple (24 Apr 2007)

Brooklyn said:


> I'd be in favour of a third tax rate, but at the top.  Once your income puts you into the super-rich bracket I don't think you should be paying the same rate as people just above the average industrial.
> 
> So obviously I'd say no way on the flat tax.


Do you mean that the third should be lower as they have already paid a large amount at 42%?


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## shanegl (24 Apr 2007)

That's not the tone I got from his post.   

If tax rates are to change I would be in favour of bringing them closer together, not further apart. I don't want us to end up like France with a millionaire leaving the country every day.


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## Brooklyn (24 Apr 2007)

There already are millionaires leaving, or should I say, claiming to have left so that they can claim non-residence for tax purposes.  They should do away with the non-resident exemption for the super super rich as well.


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## room305 (24 Apr 2007)

shanegl said:


> If tax rates are to change I would be in favour of bringing them closer together, not further apart. I don't want us to end up like France with a millionaire leaving the country every day.



Exactly, high-wage earners are extremely mobile and where they are not - they are usually pretty good at avoiding tax. The higher the tax, the more incentive there is to avoid it. Just ask Bono.

So in theory it sounds great levying 50% income taxes on millionaires but in practice they find some way to avoid it or they simply leave the country.

This country has prospered enormously since the introduction of a low corporation tax. I find it strange that so many people don't see similar benefits arising from a low flat-rate of income tax.


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## gonk (24 Apr 2007)

room305 said:


> This country has prospered enormously since the introduction of a low corporation tax. I find it strange that so many people don't see similar benefits arising from a low flat-rate of income tax.


 
The principle has also been clearly demonstrated with capital gains tax and betting tax. In both cases, large cuts in the rates of these taxes resulted in big increases in the actual revenue collected.


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## shnaek (26 Apr 2007)

I'm with purple here. 20% of €1m is more than 20% of €10k. That's progressive. I don't see why you should pay higher percentages the more you earn. You already pay more through paying a percentage at all. That's the fair part. If everyone paid 20% and we got rid of the tax breaks then things would be perfectly equitable. 
Though stealing other countries income tax is indeed a novel suggestion!


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## Towger (26 Apr 2007)

Lower Rate Cutoff Point @ 20%

Standard Rate Cutoff Point @ 40%

Higher Rate Cutoff Point @ 60%

The Tax Credit removed lower paid employees from the Tax System.

The PRSI system will be done away with, along with it's Annual Ceiling etc.

The reality is that the PRSI will be changed to an accumulative system, ie like tax.

Towger


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## shnaek (27 Apr 2007)

Towger said:


> Higher Rate Cutoff Point @ 60%



Ah, a 'drive the rich out of Ireland' scheme.


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## Purple (1 May 2007)

shnaek said:


> Ah, a 'drive the rich out of Ireland' scheme.



Stop trying to force people to confront reality.


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## Towger (1 May 2007)

shnaek said:


> Ah, a 'drive the rich out of Ireland' scheme.



Why do you think the existing system uses the terms 'Lower Cut Off Point' and 'Standard Cut Off Point'. 

Towger


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## marksa (1 May 2007)

A tweek on the flat rate scnario is that it would be done in tandem with removing the raft of tax avoidance schemes (investments in Hotels, Hospitals, Section 23, rural renewals, Business Expansion Schemes etc etc). 
All pay a standard rate of for example 28%. The rate would be set in order for the tax take to be fiscally neutral - in other words the same tax take as if the existing scheme in place. the result would be that there would be less of an incentive for people to be creative about their Taxable earnings, while still leaving the lower paid with the same position as at present.

I believe that this is the sort of set-up that has been adopted in a couple of the countries in Eastern Europe - Czech republic I think and one of the Balts.


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## Purple (2 May 2007)

marksa said:


> A tweek on the flat rate scnario is that it would be done in tandem with removing the raft of tax avoidance schemes (investments in Hotels, Hospitals, Section 23, rural renewals, Business Expansion Schemes etc etc).
> All pay a standard rate of for example 28%. The rate would be set in order for the tax take to be fiscally neutral - in other words the same tax take as if the existing scheme in place. the result would be that there would be less of an incentive for people to be creative about their Taxable earnings, while still leaving the lower paid with the same position as at present.
> 
> I believe that this is the sort of set-up that has been adopted in a couple of the countries in Eastern Europe - Czech republic I think and one of the Balts.


 So what about people who want to expand their businesses and who is going to build the nursing homes that we are chronically short of?
People with lots of money are very mobile, is it not better to keep them in Ireland where they pay low income tax but loads of VAT etc and generally put money into the economy?
I think the system we have is about right.


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