# Cap income tax levels



## Purple (25 Jun 2012)

How much income tax should one person have to pay?
Should any one person have to pay more than a million euro in income tax?
Remember that they'll pay VAT on what they spend and other taxes. 

Why not set a cap above which people stop paying income tax?
If it was one million what would the loss be? Would it bring income into the country that currently never gets repatriated?
Would we attract wealth creators like they do in Switzerland?
Would be see an increase in spending in luxury goods?

Another advantage is that most of the tax avoidance industry would cease to exist overnight.


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## Brendan Burgess (25 Jun 2012)

An interesting idea. I feel the boat really rocking. 



> Remember that they'll pay VAT on what they spend and other taxes.


I have heard it argued that income tax should be abolished and replaced with very high expenditure taxes which are much more difficult to avoid. 

However, wealthy people spend far more of their income on imported goods, so I don't think that this would work in an open economy like Ireland. 

Income tax is progressive.  Expenditure taxes are not.



I think that the current balance is about right.


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## shnaek (26 Jun 2012)

Definition of Progressive from Dictionary.com:

favoring or advocating progress,  change, improvement, or reform, as opposed to wishing to maintain things as they are

Does our income tax system advocate progress? I would suggest that it does not. I would suggest that only a flat rate tax advocates progress, and that taxing people for working extra hard, or for working overtime doesn't advocate progress or improvement. 

Taxing people more and more is the easy way out. We know this because governments do it, and Monarchs and Lords did it before them. 

We should incentivise work. I would prefer flat rate rather than tax cap as it would be easier to sell. Everyone pays the same. A cap on income tax would never fly with the masses. But I do agree 100% that we should be trying to attract wealth creators here just as we have attracted many of the top multinationals here.


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## Purple (27 Jun 2012)

Brendan Burgess said:


> An interesting idea. I feel the boat really rocking.
> 
> I have heard it argued that income tax should be abolished and replaced with very high expenditure taxes which are much more difficult to avoid.
> 
> ...



If there was a cap I don't think those on very high incomes would pay much less, they would just not pay their accountants and solicitors as much to avoid paying their income tax.


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## Brendan Burgess (27 Jun 2012)

shnaek said:


> Definition of Progressive from Dictionary.com:
> 
> favoring or advocating progress,  change, improvement, or reform, as opposed to wishing to maintain things as they are
> 
> .



Definition of "Progressive Tax" from Investopedia



> *Definition of 'Progressive Tax'*
> 
> A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals.
> Read more: http://www.investopedia.com/terms/p/progressivetax.asp#ixzz1z1Sb0CXk
> ​


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## Brendan Burgess (27 Jun 2012)

Purple said:


> If there was a cap I don't think those on very high incomes would pay much less, they would just not pay their accountants and solicitors as much to avoid paying their income tax.



The solution to that is to simplify the tax system.  

Reducing the fees paid for tax planning may be a good idea in itself, but it is not a reason for setting tax policy.


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## Chris (28 Jun 2012)

Not sure about a cap, but a low flat rate would beis good start. Read a good comment a while back from the US, where similar to Ireland 50% of people don't pay income tax. It went something like "50% of people pay no income tax, let's work towards making that 100%."

I would be very much in favour of a consumption tax with one idea I read being relatively simple. You declare your wealth at the start if the year, plus your income for the year and subtract your wealth at the end of the year. This will give you a value that reflects what you spent in the year, and you are taxed on that value. This encourages working, encourages saving/investment and discourages spending. It also gives people the power to vote against government spending with their feet by reducing spending and thereby their tax bill.


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## shnaek (28 Jun 2012)

Brendan Burgess said:


> The solution to that is to simplify the tax system.



And what would be simpler than a flat rate tax?



Brendan Burgess said:


> Definition of "Progressive Tax" from Investopedia



Indeed, but in your post above you said that income tax was progressive, not that it was a 'Progressive Tax'. It is a distinction that most people ignore, such is the genius of calling the thing 'progressive' in the first place. Makes everyone assume that the opposite is 'regressive' when it has nothing to to with 'progress' or 'regress' in the first place - it is merely a very clever name.

So can I now christen the flat rate tax system 'Good Tax'? I can add it to investopedia and then all other taxation systems will be seen as bad. Or perhaps we should christen it 'Sensible Tax' - has a nicer ring to it. When people argue against it, we can counter that it is sensible, and thus we win the argument


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## Brendan Burgess (28 Jun 2012)

> And what would be simpler than a flat rate tax?



The simplest tax system would be to abolish all tax. 

The current system is too complicated. It should be simplifed. But having one tax system would be better than having tax and USC, for example. 

But there is nothing complicated about having a progressive tax system. Three rates of tax would be very easy to administer. 

Eliminate as far as possible the various tax incentives which have been introduced. 

It will not be a simple system. But it will be a less complex system.

Brendan


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## shigllgetcha (14 Nov 2012)

Chris said:


> Not sure about a cap, but a low flat rate would beis good start. Read a good comment a while back from the US, where similar to Ireland 50% of people don't pay income tax. It went something like "50% of people pay no income tax, let's work towards making that 100%."


 
Good lord quoting mitt romney.


> Only 18 percent of tax filers did not have to pay either income tax or payroll taxes.


http://abcnews.go.com/Politics/OTUS/mitt-romneys-47-percent-pay-income-taxes/story?id=17263629

USC is at such a low threshold that I dont think your quote that 50% of people in ireland dont pay taxed


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## orka (20 Nov 2012)

There is an interesting opinion piece in the Irish Times today cautioning against further increases in our top marginal rate. http://www.irishtimes.com/newspaper/opinion/2012/1120/1224326838841.html

High-level summary:

· Ireland already has the most progressive income tax system in the EU
· Ireland is joint 10th in the OECD for marginal income tax rates
· There is a strange imbalance in our income tax system: we have one of the lowest tax rates for an average earner but one of the highest marginal tax rates
· Many countries are reducing their corporate tax rate making our low corporate tax rate not quite the standout it once was – so investors are now also looking at marginal income tax rates for senior executives which may be a disincentive to invest here.
· The top rate is reached at a much lower level in Ireland than in competitor countries: high earners in the UK can earn £150K (€187K) before entering the top rate of income tax, €250K in Germany and €175K in Spain.
· The UK reversed their 2010 increased top rate of 50% - back down to 45%. The UK tax authorities reviewed the impact of the increase and found that the higher rate was “a highly distortionary form of taxation” which elicited “a considerable behavioural response” among tax payers. Revenue from the higher rate was much lower than anticipated and may actually have had a negative effect on tax revenues.
· Income tax take in 2012 is expected to be 15.3B from 1.8M people at work vs. 13.5B in 2007 when there were 2.1M people at work.



> The Economist Intelligence Unit has already issued a strong cautionary message for Ireland on this very issue. Its 2012 report, _Investing in Ireland – A Survey of Foreign Direct Investors_, praises our pool of domestic and foreign workers, but says income taxes could be discouraging senior talent. Investors are concerned about what they see as imbalances in our personal tax system; a large gap between the average all-in tax rate paid by the typical worker, which is among the lowest in the OECD, and the marginal tax rate for top earners, which is among the highest. They believe that these high marginal rates will make it less attractive for senior executives to settle here.





> The Department of Finance, in its own published review of the USC in November 2011, said that the abolition of the PRSI ceiling, together with the introduction of the USC, brought about a more progressive and equitable combination of charges. The tax reforms of recent years mean that Ireland now has the most progressive tax system in the European Union.


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## Chris (22 Nov 2012)

shigllgetcha said:


> USC is at such a low threshold that I dont think your quote that 50% of people in ireland dont pay taxed



You need to re read my post. I said that 50% of income earners pay no income tax, I dod not say they do not pay any tax at all.


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## Protocol (15 Apr 2015)

New OECD data on income tax paid across countries:

http://www.oecd.org/tax/oecd-tax-burdens-on-wages-rising-without-tax-rate-increases.htm

http://www.oecd.org/tax/taxing-wages-20725124.htm

The "tax wedge" on an average single worker ranges from 10-55% across the OECD.

The average is 36% of labour cost.

Irl, as expected, is below average, at just over 30%.


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## Purple (15 Apr 2015)

Protocol said:


> New OECD data on income tax paid across countries:
> 
> http://www.oecd.org/tax/oecd-tax-burdens-on-wages-rising-without-tax-rate-increases.htm
> 
> ...


As long as we have such an unbalanced system where a small proportion of earners pay the lions share of income taxes our average will be below the OECD average.


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## Protocol (15 Apr 2015)

Purple,
what you say is correct.

Also note from the OECD data that it's employers PRSI that is particularly low in Ireland.


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## Purple (15 Apr 2015)

Protocol said:


> Also note from the OECD data that it's employers PRSI that is particularly low in Ireland.


I agree but employers PRSI used to cover the cost of redundancy but now the employer gets nothing for it so it's no longer social insurance, just an employment tax. It could also be viewed as income tax which is deducted before employees are paid as it is a slice from the available funds that are used to pay employees.

Do you know if there is a cap on payments in other countries, as there used to be here for employee PRSI?


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## Protocol (15 Apr 2015)

Yes, it many countries they are income ceiling for social insurance.

Here is the German rates:

18.7% pension, split 50/50 between ee and er, up to 72,600

14.6% health ins, split 50/50 up to 49,500

3% UI, split 50/50

2.35% long-term care insurance up to 49,500

So we are now at 38.65% of wages, split 50/50

The employer pays an extra 1.25% accident insurance.

So employers pay 20.5% soc ins, much more than here.


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## Purple (15 Apr 2015)

Protocol said:


> Yes, it many countries they are income ceiling for social insurance.
> 
> Here is the German rates:
> 
> ...


OK, so it's around 10% up to €72'600 and another 10% up to 49'500. Their total liability will never exceed €12'500.
Therefore the real question is what the average % paid is in Germany and what the average % paid is in Ireland.
We should also ask what do German companies get for their payments? Does the German state cover the cost of redundancy or training or offer better sick pay?

It also shows that taxes on high earners in Ireland are proportionately higher for employers and not just employees.


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## Protocol (15 Apr 2015)

Have a look here:
http://www.kpmg.com/global/en/issue...s-flash-alerts-2014/flash-alert-2015-022.aspx

10.85% on pension / UI up to 72,600 = max 7877
Also 8.475% up to 49,500 = 4195 max

So 12,072 for a worker earning 72,600 paid by the employer.

That's 16.6% er soc ins.


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## Purple (15 Apr 2015)

Protocol said:


> Have a look here:
> http://www.kpmg.com/global/en/issue...s-flash-alerts-2014/flash-alert-2015-022.aspx
> 
> 10.85% on pension / UI up to 72,600 = max 7877
> ...


Thanks for the link. Do you know what the employer in Germany gets for their contribution?
The employer will pay 10.75% for an Irish Employee earning €72'600 or €7'804.5.

When an employee earns over €112,300 a year the Irish employer pays more PRSI and that continues as wages go up as there is no cap in Ireland. Yet another tax on skills.


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