# NERI  "Top 10% of households have an effective tax rate between 22.5% and 27.5%"



## Brendan Burgess (18 Sep 2013)

The Nevin Economic Research Institute has launched their  [broken link removed]

Their key point is 

"Currently the top 10% of households (above €109,000 gross income per year)  have an average effective tax rate of between 22.5% and 27.5%" 

Anyone lucky enough to be earning €109,000 per year must be shocked to see that they are paying only 22.5% in tax. 

So how does the Nevin Institute come up with this figure? It takes a lot of statistical wizardry to show that the top earners in this country pay an effective tax rate of 22.5%. 

*Trick no.1   Talk about households, not individuals. *
So a household is all of the people living together in one household.  So this includes 


 a single person living on their own, earning €109,000
A couple where each earns €55,000
three nurses sharing a house who earn €37,000 each
*Trick no.2 Redefine gross income *

Add in the following 


Employers' PRSI
Child benefit
As a result, a couple have to earn only €45,000 each to be assigned a gross income of €109,000 which catapults them into the top 10% of households. 

*Trick no 3 - Double count pension contributions as income *


 Add the employers' pension contribution to gross income
Don't allow the employees' contributions as a deduction
But when the person draws down the pension in retirement, show it as gross income.
Pension contributions whether contributed by the employer or the employee are deferred income and should only be taken into account once - when the person receives the pension income. 



*A comparison of the true effective tax rate with NERI's calculation 
*


 |Taxable income{br}single person| Neri's gross income{br}couple earning €45k each
Gross salary per payslip| €90,000| €90,000
Less employees' pension contributions|€ 4,500
Add employers' pension contributions||€ 9,000
Add employers' prsi||€ 9,675
Add child benefit for two kids||€ 3,120
Taxable income/ NERI's gross income|€85,500|€111,975
Tax paid|€35,931|€25,063
Effective tax rate| 42%|22.3%*


Trick no. 4 Ignore the Revenue's own data on effective tax rates 
*

The [broken link removed], gives the data for income tax for 2010.  (Extract attached to this post) 

For single people earning between €100k and €150k 


|total|males|females 
Income tax paid|€239m|€150|89m
Gross income|€876|€558m|€318m
Rate|27.2% As tax credits, have been reduced, it's likely that the effective tax rate  has risen marginally.

So the effective total tax rate for 2013 for a single person earning between €100k and €150k is 



income tax|28%
USC|7%
Prsi|4%
Total|39%*


Trick no. 5 Don't specify how you would raise the "effective tax rate from 22.5% to 24%" 

*For example, don't suggest any of the following which are implied by the way the figures are presented


The  married tax credit should be abolished. Married couples  should be treated as if they were a single person, in the same way as we present our data.
All people living in a house together should be taxed as one person i.e.they should have only  one set of tax credits between them.
The tax relief on employees' pension contributions should be abolished but pensions in retirement should continue to be taxed.
The tax relief on employers' pension contributions should be abolished also.
Employees should be taxed on the PRSI paid by their employers, and any resulting benefits such as Jobseekers Benefit or Maternity Benefit should continue to be taxed as well.
Child Benefit should be taxed.


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## Brendan Burgess (18 Sep 2013)

Here are the Revenue's figures for  effective rates of tax and USC for 2011 for PAYE workers. Self employed pay more 




 Income|Single person|married couple 
€100,000| 34.67%|31.13%
€150,000|38.29%|35.93%
These exclude employees' PRSI of 4%. 

*The marginal tax rate for people earning over €100,000 

*
For people earning over €100,000 



|PAYE|self-employed
Income tax|41%|41%
USC |7%|7%
USC surcharge||3% 
PRSI|4%|4%
Total|52%|55%
The top tax rate is actually twice "NERI's effective tax rate of 22.5%"


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## Purple (18 Sep 2013)

Why does anyone think a trade union lobby group misrepresenting themselves as a Economic think-tank would base their proposals on fact?
Propaganda is, by it's nature, a misrepresentation of the truth.


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## 44brendan (18 Sep 2013)

All of these proposals by trade unions "think tanks" appear to be both naive and unfair. i.e. They pick an earnings level that can be seen as a target group. They make assumptions based on their own version of the facts. They make no allowance for number of family members/existing mortgage payments etc. in their assumptions. Conclusions are that there is a large body of people in Ireland with high incomes and ample ability to pay additional tax. As per a previous analysis completed by Brendan B, there is already a extremely proportinately high tax burden on those categorised as "high earners". If the purpose of this type of paper was universally fair in its approach and geared towards ability to pay rather than a nominal gross household income, I could see a rationale for such a proposal. However when it constitutes a blinkered and polemic approach it should be ignored.


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## dereko1969 (18 Sep 2013)

It seems to me that some of these studies are worked backwards from the press-release rather than being an examination of what a fairer tax system should be. It's what simplistic headline can we get and then figure out how to get there, not very scientific.


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## orka (18 Sep 2013)

Another howler imho are the ‘case studies’ in Table 5, page 8. _(attached by Brendan) _Their chosen example to expand on (for illustrative purposes...) would not pass the haha test of ‘is this family likely to exist and make these choices’. To show that, shock, the effective tax rate could be as low as 14.56% for a 2-income PAYE family earning 50K each, the family would have to (deep breath):
· invest 30K pa in pension (so they are over 50) (at least 4 children and they are giving up this much current income...)
· have 3 children young enough for child benefit
· have at least one child old enough to incur 5,000 of eligible education fees
· have a capital gain of 2,500
· be eligible for 2,000 mortgage interest relief
· have health expenses of 500
· have flat rate expenses of 300
· buy eligible transport tickets of 2,400 (those poor children with parents commuting so much, hope the childcare isn’t too expensive what with all that money gone into the pension)
But wait, there’s more – “A household could reduce this rate further by accessing any of the other, less common, tax breaks”. So, yes, sure, in theory, it would indeed be possible to have a 2-income 100K couple paying an effective tax rate of 14.56% - but really? Who would make these choices? 

The other disconnect for me is a common one when looking at effective tax rates: having spent considerable effort showing how the problem is not the basic tax structure but the various reliefs which can reduce the standard rates – the solution is ... hike up the standard rates!! If the problem is the tax reliefs reducing effective rates, then change the tax reliefs! Why penalise those who do pay full standard rates with few/no reliefs? I know they do suggest changes in tax reliefs as one (of many) possible solutions but they know that there will be unpredictable behavioural impacts.

Another of their suggestions which again is often suggested in the hopes that listeners/readers will think it eminently sensible is to make those on 100k+ pay the same USC as self-employed people on 100K+ who currently pay 3% more in USC than non-self-employed. Sounds sensible at first glance but what goes unmentioned is that the self-employed do not have a 10.75% employer contribution paid on their behalf – so actually, to even things up, the self-employed should pay 7.75% more... (I’m not suggesting this...)


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## Brendan Burgess (19 Sep 2013)

Folks

I think that this is a really important issue. How a think thank is using a variety of tricks to deliberately mislead people. 

I have summarised your various contributions in a revised first post on this thread. 

I have removed most of your replies as they are reflected in the first post.


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## Delboy (19 Sep 2013)

Good work Brendan....It'll be interesting to see if the Unions/socialist politicians in opposition continue to run with this data to advance their positions in advance of the budget.

Have you heard anything back from the Nevin Inst on this?
Have you submitted a synopsis of this in the form of a press release to the various media outlets? It might make them think twice before they gave it any more publicity or quote it in future


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## Brendan Burgess (19 Sep 2013)

Delboy said:


> Have you heard anything back from the Nevin Inst on this?



Not to the written version. When I challenged them at the press conference yesterday,  they said "We will have to agree to disagree". 





> Have you submitted a synopsis of this in the form of a press release to the various media outlets?



Yes, I sent it out yesterday at around 4. 

Based on the replies to the thread which pointed out that employers prsi was included in income, I rewrote it and re-issued it today.

They have got very little press coverage, although I was told that they were "all over the media" yesterday.


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## DerKaiser (19 Sep 2013)

Orka, I suspect more intellectual energy has gone into and insight provided by your post than into the lifetime's work of the NERI institute.

Brendan, I applaud you all the way on this. Any issues with poverty and inequality we have in this country have been served very badly by the never ending list of costly and intellectually bankrupt reports.


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## Bronte (19 Sep 2013)

Brendan Burgess said:


> Not to the written version. When I challenged them at the press conference yesterday, they said "We will have to agree to disagree".
> 
> 
> .


 
Which press conference and is it on a podcast ?


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## Purple (19 Sep 2013)

DerKaiser said:


> Orka, I suspect more intellectual energy has gone into and insight provided by your post than into the lifetime's work of the NERI institute.
> 
> Brendan, I applaud you all the way on this. Any issues with poverty and inequality we have in this country have been served very badly by the never ending list of costly and intellectually bankrupt reports.


big +1 to both of those points.


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## Brendan Burgess (19 Sep 2013)

Bronte said:


> Which press conference and is it on a podcast ?



They had a launch yesterday. I don't think it has been podcasted. (It wouldn't be interesting - you would just hear the chairman saying "Brendan - you have asked enough questions. Let someone else ask a question") 

Check out their website for upcoming conferences 

On 25th September, they are having "Reflections on an Irish wealth tax". 

On 23 October, they will be having a Post-Budget seminar.


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## Purple (19 Sep 2013)

Thanks for the link Brendan. I'd go to "Reflections on an Irish wealth tax", if only to heckle, but I'll be out of the country.

In light of their "Quarterly Economic Observer" their "About us" page is full of irony;


> The remit of the Institute is to:
> •*advance knowledge and understanding of economics and the social sciences*, with particular reference to the economic and social conditions in or affecting the island of Ireland;
> •undertake, to the benefit of the public, research and analysis on the impact of economic policy development and its effects towards the attainment of a more equitable and just society;
> •publish and promote research findings in order to advance awareness and comprehension of economic theory;
> ...



Has anyone read their paper "_Income Distribution, Pre-Distribution and Re-Distribution: Latest data for the Republic of Ireland_"?
I'm not going to today; it would just annoy me.


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## ashambles (19 Sep 2013)

It seems this isn't a real proposal and they're simply preparing the ground for the post budget debates so the unions can pretend to be protecting workers as they'll then claim to have had a proposal to tax earners over 109k. In a budget debate it'll be impossible for anyone to take apart NERI's nonsense without being cut off by the moderator as it'll appear to be a side issue.

I believe it's a version of the "appeal to authority" fallacy except it's totally contrived and the authority is themselves.
From https://yourlogicalfallacyis.com


> Using the opinion or position of an authority figure, or institution of authority, in place of an actual argument


They're hoping to have Joe Soap thinking - "Look Jack O'Connor had some plan to tax other people, but the elite weren't prepared to listen, so they're hitting me instead. I'll keep paying my union dues because they're the only ones who'll speak up for us." 

The media in general should know the game NERI and the unions are playing.


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