# The top 6% pay 49% of all income tax and USC



## PMU (8 Sep 2017)

This is interesting  http://www.finance.gov.ie/wp-content/uploads/2017/07/TSG-17-02-Income-Tax-and-USC-paper-FINAL-JC.pdf and relates to the 2018 budget.

PDF page 7


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## TheBigShort (9 Sep 2017)

It doesn't really mean anything when statistics are presented as % of a %.

For example, if there were 10 income earners in an economy, 9 earning €10,000 and 1 earning €50,000 and apply a 50% tax on all income, sounds fair right? Then the top 10% of earners will contribute 35% of the total tax take.
But to reduce the tax burden for everybody, in a fair way, the government introduces a tax credit scheme, exempting the first €5,000 of everybody's income from tax. Still sounds fair right?
But the income tax take is reduced, and even though everybody pays 50% on their taxable income and everybody receives the exact same tax credit, the top 10% overall contribution will increase from 35% of the overall tax take to 50%. Increase the tax credit further for everyone,  in equal measure, and the overall tax contribution of the top 10% will increase further.


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## Gordon Gekko (9 Sep 2017)

I think the point is that when leftie clowns say "tax the rich", it's already happening, and that when wasters moan about austerity, it's laughable because they hardly pay for anything anyway.

Austerity has been savage on mid to high earners, but they've just got on with it.


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## Brendan Burgess (9 Sep 2017)

It would be handy to have the figures as follows

The top 6% earn [25%] of all income and pay 49% of all income taxes and USC. 

Brendan


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## TheBigShort (9 Sep 2017)

Brendan Burgess said:


> It would be handy to have the figures as follows
> 
> The top 6% earn [25%] of all income and pay 49% of all income taxes and USC.
> 
> Brendan



It still would be somewhat meaningless. In my straightforward example above the top 10% earn 35% of all income, but once tax credits are applied in equal measure to everyone, the overall tax burden in, % terms only, increases on higher earners.
In real monetary terms, everyone still pays the exact same amount of tax on their taxable income (in this example 50%), in real life 20% on first €33,500, 40% thereafter - applicable to everyone.
One other important factor in these type of calculations is the fact that many people simply don't earn enough to contribute to the tax system as It is designed.
As much as some workers are being labeled as 'wasters' for 'not paying for anything', equally, their employers could be labeled scroungers for the miserable wages they pay.  Neither position will assist in contributing to designing a fair tax system.


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## Brendan Burgess (9 Sep 2017)

Hi Shortie 

Fairness is one issue, but there are other issues. 

If 6% are paying 49% of the taxes, then it suggests to me that government revenue will be disproportionately hard  hit hard during the next downturn.  

If the incomes of the bottom 50% fall a bit, it won't affect the tax take that much. 

Brendan


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## TheBigShort (9 Sep 2017)

Brendan Burgess said:


> If the incomes of the bottom 50% fall a bit, it won't affect the tax take that much.



Sorry, I'm not sure what this means. Are you suggesting that increasing tax on bottom 50% by a modest amount? If so, I would be interested in hearing the proposal.


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## TheBigShort (9 Sep 2017)

Just as an add-on, these type of stats do not necessarily suggest an inherent unfairness in the tax system. In fact they are a greater indicator of income inequality.
Again using my simple example above, if in year 2, the 9 workers got no pay rise, but the top 1 earner got an extra €20,000. Again, % income tax burden would rise on the the top earner, reducing the% burden rate of the lower earners.
For that, should we increase taxes on low earners?


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## Gordon Gekko (9 Sep 2017)

Why not decrease the single person tax credit and PAYE tax credit from €1,650 to €1,500?

It would raise circa €500m...


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## PMU (9 Sep 2017)

TheBigShort said:


> Just as an add-on, these type of stats do not necessarily suggest an inherent unfairness in the tax system. In fact they are a greater indicator of income inequality.


This analysis on Ireland from the OECD - Economic Survey of Ireland 2015 - http://www.oecd.org/ireland/economic-survey-ireland.htm (IMHO well worth reading) shows that Ireland's tax and transfer system reduces inequality by more than any other country in the  OECD and that Ireland's relative poverty rate is low.  And remember, 38% of Irish workers do not pay any income tax.

The Tax Strategy Group in is document noted that "However high marginal rates of taxation as a result of progressive taxation can have a negative impact on incentives to work for income earners, and lead to increased labour costs for employers who may have to offer a certain level of net income in order to attract employees in a competitive labour market.  Marginal tax rates which are high by comparison to competitor jurisdictions can therefore have a negative impact on domestic businesses seeking to attract mobile highly-skilled workers.  They can also be a negative factor in the location choices of foreign direct investment, a particularly important issue for the Irish economy."  But this is just wrong, in that it focuses on 'mobile highly-skilled workers' and FDI, and ignores that in Ireland high marginal tax rates disproportionately hit ordinary workers, with over half Irish workers paying tax at the marginal rate.


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## TheBigShort (9 Sep 2017)

PMU said:


> This analysis on Ireland from the OECD - Economic Survey of Ireland 2015 - http://www.oecd.org/ireland/economic-survey-ireland.htm (IMHO well worth reading) shows that Ireland's tax and transfer system reduces inequality by more than any other country in the  OECD and that Ireland's relative poverty rate is low.  And remember, 38% of Irish workers do not pay any income tax.
> 
> The Tax Strategy Group in is document noted that "However high marginal rates of taxation as a result of progressive taxation can have a negative impact on incentives to work for income earners, and lead to increased labour costs for employers who may have to offer a certain level of net income in order to attract employees in a competitive labour market.  Marginal tax rates which are high by comparison to competitor jurisdictions can therefore have a negative impact on domestic businesses seeking to attract mobile highly-skilled workers.  They can also be a negative factor in the location choices of foreign direct investment, a particularly important issue for the Irish economy."  But this is just wrong, in that it focuses on 'mobile highly-skilled workers' and FDI, and ignores that in Ireland high marginal tax rates disproportionately hit ordinary workers, with over half Irish workers paying tax at the marginal rate.



I'm not disputing any of that. I'm disputing that headline stats, like the title of this topic are meaningless.
If for example, given your post, that the cut off point for the marginal rate was raised to €45,000. This would go someway to addressing the issues raised in your post. But simultaneously, it would reduce the overall income tax take but still leave incomes over €45,000 paying the marginal rate. So that next year, when this issue is raised again, the headline may read 'top 6% pay 51% of all income tax'.
The overall tax burden in % terms has _increased _on the highest earners, even though in monetary terms they are now better off.


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## TheBigShort (9 Sep 2017)

Gordon Gekko said:


> Why not decrease the single person tax credit and PAYE tax credit from €1,650 to €1,500?
> 
> It would raise circa €500m...



You could do that. But the effect for low and middle income earners would be to reduce their disposable income by the equivalent of one to two weeks wages per annum.
Given what we know about the daily struggles of people and families in these income brackets, reducing their income will only exasperate those struggles.
I would fear that the €500m in extra taxes would simply be used to provide additional welfare supports for those who can't make ends meet as a consequence of this measure.


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## Sarenco (9 Sep 2017)

TheBigShort said:


> I'm disputing that headline stats, like the title of this topic are meaningless.




The headline stats are not meaningless.  The stats may not suit your ideological viewpoint but that does not mean the stats are meaningless. 

We have an exceptionally progressive income tax and social welfare regime by international standards.  I happen to think that is something we should be proud of as a nation.  However, any argument that ignores or tries to obscure this reality (and the hard left are masters at this art) leaves me cold.

Has the progressive nature of our income tax regime gone too far?  Is it impacting our ability to compete for FDI?  Is it reducing incentives to work?  Should we instead increase taxes on capital by way of a meaningful property tax?

There is plenty of room for debate in all those areas but trying to deny or fudge reality doesn't advance your agenda.


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## TheBigShort (9 Sep 2017)

Sarenco said:


> The stats may not suit your ideological viewpoint but that does not mean the stats are meaningless.



It's nothing to do with my ideological viewpoint, it's simply to with math. The headline stat means zero unless you analysis the actual earnings. I've already shown a simple example of where everybody pays the same rate of tax and everybody receives the exact same tax credit on their incomes, yet depending on the level of actual income, these stats can be distorted.
If I'm wrong, and these stats have meaning, I would gladly like someone to explain the meaning of them.



Sarenco said:


> We have an exceptionally progressive income tax and social welfare regime by international standards. I happen to think that is something we should be proud of as a nation. However, any argument that ignores or tries to obscure this reality (and the hard left are masters at this art) leaves me cold.



Where did I argue the contrary?



Sarenco said:


> There is plenty of room for debate in all those areas but trying to deny or fudge reality doesn't advance your agenda.



I think you have mistaken me for someone else.


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## Gordon Gekko (9 Sep 2017)

TheBigShort said:


> You could do that. But the effect for low and middle income earners would be to reduce their disposable income by the equivalent of one to two weeks wages per annum.
> Given what we know about the daily struggles of people and families in these income brackets, reducing their income will only exasperate those struggles.
> I would fear that the €500m in extra taxes would simply be used to provide additional welfare supports for those who can't make ends meet as a consequence of this measure.



It's €3 a week per credit...perhaps we should all put our shoulders to the wheel rather than the same old crew?


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## TheBigShort (9 Sep 2017)

Gordon Gekko said:


> It's €3 a week per credit...perhaps we should all put our shoulders to the wheel rather than the same old crew?



€3 a week to a family trying to keep the lights on would certainly be putting their shoulders to the wheel.
I'm not sure a high income family would consider an extra €3 a week in the same vein.
When you say "we should all" put our shoulders to the wheel with an extra €3 a week, it doesn't really stack up, does it?


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## PMU (9 Sep 2017)

TheBigShort said:


> I'm not disputing any of that. I'm disputing that headline stats, like the title of this topic are meaningless.


  The title of the topic comes from statistics produced by the Government's tax strategy group; I didn't make any of these figures up.  If they are 'meaningless' you can always address your concerns to the Government's Tax Strategy Group.


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## Sarenco (9 Sep 2017)

TheBigShort said:


> If I'm wrong, and these stats have meaning, I would gladly like someone to explain the meaning of them.



The fact that the Dept of Finance estimates that the top 6% of income earners pay 49% of income tax and USC _is _a meaningful statistic.  It may not tell you everything you might wish to know but that does not make it meaningless. 

And, no, I haven't mistaken you for somebody else - your "arguments" are quite distinctive and very clearly driven by a particular agenda.


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## TheBigShort (9 Sep 2017)

PMU said:


> The title of the topic comes from statistics produced by the Government's tax strategy group; I didn't make any of these figures up.  If they are 'meaningless' you can always address your concerns to the Government's Tax Strategy Group.



I'm not disputing that the top 6% of earners pay 49% income tax and USC. Simply, I'm suggesting it really doesn't mean anything. Perhaps I can ask, what do these stats mean to you?


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## TheBigShort (9 Sep 2017)

Sarenco said:


> The fact that the Dept of Finance estimates that the top 6% of income earners pay 49% of income tax and USC _is _a meaningful statistic.



A statistic yes, meaningful no.



Sarenco said:


> It may not tell you everything you might wish to know but that does not make it meaningless.



It tells me very little. Of little consequence, to the point of being meaningless.
I stand to be corrected, what does the headline stat mean to you?


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## Sarenco (9 Sep 2017)

TheBigShort said:


> I stand to be corrected, what does the headline stat mean to you?



It means that almost half of all income tax and USC receipts are generated from a very small percentage of income earners.

That is meaningful as it tells us that the bulk of the income tax burden falls on a relatively small % of income earners.


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## TheBigShort (9 Sep 2017)

Sarenco said:


> That is meaningful as it tells us that the bulk of the income tax burden falls on a relatively small % of income earners.



Yes, by virtue of their high incomes and nothing else. So what? What is the purpose of focusing on this particular stat?


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## orka (9 Sep 2017)

TheBigShort said:


> Yes, by virtue of their high incomes and nothing else. So what? What is the purpose of focusing on this particular stat?


To show the over-reliance of the country's economy on a small group of people - some of whom will be mobile and/or many of whom will have more variable incomes than lower earners?  This is a bad thing as it leaves the country's finances susceptible to more variation than if there was a more stable base. You might understand the issue better looking at corporation tax: the 'equivalent' headline is '10 firms pay nearly 40% of corporation tax' (close to €3B between them).  What do you think happens if just one of these firms leaves or relocates their financial base? (Clue: it's not good...)  

On a smaller scale, over-reliance for income tax on a small group of high-income earners is less stable than a broader tax base.


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## Gordon Gekko (9 Sep 2017)

TheBigShort said:


> €3 a week to a family trying to keep the lights on would certainly be putting their shoulders to the wheel.
> I'm not sure a high income family would consider an extra €3 a week in the same vein.
> When you say "we should all" put our shoulders to the wheel with an extra €3 a week, it doesn't really stack up, does it?



Hmm, for all the spoof about austerity, very little has been contributed by those on lower incomes.

The same spin that worked against water charges works against a cut to the PAYE and Single Person credits.

Cut them by €150 each, and take in an extra €500-600m a year.


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## TheBigShort (9 Sep 2017)

orka said:


> To show the over-reliance of the country's economy on a small group of people - some of whom will be mobile and/or many of whom will have more variable incomes than lower earners? This is a bad thing as it leaves the country's finances susceptible to more variation than if there was a more stable base.



So the idea is to increase taxes on the low without increasing taxes any further on the high paid?
One proposal made here is to reap in €500m extra by reducing tax credits, at €3 a week.
But that €3 a week will be payable by all income earners. For sure, the top 6% will only contribute 48.5% ( guesstimate) of the tax now, but they might be peeved off that they still has this enormous burden to carry and are also out of pocket by €3 a week. And it hardly addresses the point you raised, does it?
Other alternatives are to cut the marginal rate, leaving a deficit in public finances to be made up elsewhere through VAT, motor tax, property tax, bin charges, CGT, etc...etc..., invariably impacting those that hold the greatest wealth more so than those whose income is limited, no car etc...etc...
Another alternative is increase the standard rate...see above.
Another alternative is to cut tax credits, putting pressure on wage demands from those at the lowest end of the scale.
Another alternative, not yet mentioned is, cut the incomes of the highest earners. That way, the % contribution of the top 6% will fall dramatically. Except, if you are concerned about their mobility, cutting their incomes is one way to see them flee.
Other than all that, I haven't seen one logical proposal to resolve the issue (if there actually is one) of the top 6%.


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## Sarenco (9 Sep 2017)

TheBigShort said:


> Yes, by virtue of their high incomes and nothing else.



No, by virtue of the level of tax levied on their income.

You can debate whether that level of taxation is appropriate or excessive (have you heard of the Laffer curve?) but continuing to deny that it is a meaningful statistic is getting you nowhere.


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## TheBigShort (9 Sep 2017)

Sarenco said:


> No, by virtue of the level of tax levied on their income.
> 
> .



Are you suggesting that the level of tax levied on the income of the top 6% of earners is greater than everybody else?


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## TheBigShort (9 Sep 2017)

Here's a puzzle. The top 6% (roughly 120,000 workers) earn roughly on average €175,000 pa, contributing some 49% of income and USC tax.
If the top 6% were offered pay rises that doubled their salaries (with everyone else's remaining the same) then what % of the income tax take would the top 6% be contributing? Is it
A) more than 49%
B) other

2nd question

If the answer is A) then

1) do you think anything should be done about it? If so, what?


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## Sarenco (9 Sep 2017)

TheBigShort said:


> Are you suggesting that the level of tax levied on the income of the top 6% of earners is greater than everybody else?



Yes.  That should be obvious.  

How else would they end up paying 49% of all income tax and USC?


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## TheBigShort (9 Sep 2017)

Sarenco said:


> Yes.  That should be obvious.
> 
> How else would they end up paying 49% of all income tax and USC?



By virtue of their high incomes.

What tax rates do you think are levied on their incomes? 
Last I checked it was 20% up to €33,500 and 40% thereafter for EVERYONE.
Are you seriously suggesting that the top 6% are subject to a different tax code?


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## TheBigShort (9 Sep 2017)

Gordon Gekko said:


> Hmm, for all the spoof about austerity



Who was spoofing? 



Gordon Gekko said:


> very little has been contributed by those on lower incomes.



How much would you have them contribute? Considering their LOW incomes, how much should they contribute?



Gordon Gekko said:


> Cut them by €150 each, and take in an extra €500-600m a year.



That's called austerity. And who exactly do you mean by '_them'?_ Your €500-€600m is actually a tax increases on all income earners. The struggling middle class will be delighted with your proposal, not!


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## TheBigShort (9 Sep 2017)

_Duplicate_


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## orka (9 Sep 2017)

TheBigShort said:


> Are you seriously suggesting that the top 6% are subject to a different tax code?


You didn't ask about tax code though - you asked a very different question.





TheBigShort said:


> Are you suggesting that the level of tax levied on the income of the top 6% of earners is greater than everybody else?


The LEVEL of tax levied on high income earners is, of course, greater than on lower incomes - it's a simple fact with a progressive tax code.  Both in € and %, higher earners pay more.


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## Sarenco (9 Sep 2017)

TheBigShort said:


> Are you seriously suggesting that the top 6% are subject to a different tax code?



No but you asked about the _level_ of tax levied on the top 6% of income earners.

Higher income earners pay tax at their marginal rate (55% in the case of the self-employed) on a greater proportion of their income.  Hence, they pay a greater level of tax on their incomes than lower earners.


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## TheBigShort (9 Sep 2017)

orka said:


> You didn't ask about tax code though - you asked a very different question.



I'm simply asking what is the significance of the top 6% being liable for 49% of the tax. Like I suggested earlier, if the same 6% all doubled their salaries next year, relative to everyone else, then they would contribute to an even greater % than 49%. Isn't that correct?
So by virtue of their high incomes they contribute 49% of the income tax take. If you increase those incomes, relative to everyone else, the % level would increase greater than 49%. Isn't that correct?
For that, low income earners should pay more tax on their incomes. Is that correct?



orka said:


> The LEVEL of tax levied on high income earners is, of course, greater than on lower incomes - it's a simple fact with a progressive tax code. Both in € and %, higher earners pay more.



In monetary terms yes of course. In % terms, the rules are clear for everyone - 20% on first €33,500, 40% thereafter.
There is no separate tax code for the top 6%. The same rules apply to them as a minimum wage worker. You cannot compare the tax liability of a minimum wage worker with a millionaire and deduce that we are over reliant on the taxes of the millionaire and instead we should rely more on the tax contributions of the minimum wage worker.




Sarenco said:


> No but you asked about the _level_ of tax levied on the top 6% of income earners.



20% up to €33,500
40% thereafter
Minus personal and PAYE allowances. The same rules for everybody.
What you appear to be ignoring is that the top 6% only contribute 49% of the income tax take by virtue of their incomes.
If their incomes were to double next year, relative to everyone else, then they would contribute an even greater amount than 49%, isn't that correct?
Do you think the top 6% would reject a doubling of their incomes on the basis that it would mean a higher % contribution of the total tax take?



Sarenco said:


> Higher income earners pay tax at their marginal rate (55% in the case of the self-employed) *on a greater proportion of their income. *Hence, they pay a greater level of tax on their incomes than lower earners.



No they don't. You cannot compare the tax liability of someone on €100,000 with someone on €20,000. The €20,000 earner doesn't have the income in the first instance.
All you can do, in fairness, is compare what the €100,000 earner pays on their first €20,000 and then compare that to what the €20,000 earner pays and you will find, that the level of tax applicable is exactly the same.


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## jpd (9 Sep 2017)

Oh Lord, is this the level discussion we expect


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## TheBigShort (9 Sep 2017)

jpd said:


> Oh Lord, is this the level discussion we expect



"Is this the level _of _discussion we expect."

Just thought I would help you out there.


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## TheBigShort (9 Sep 2017)

But assuming, for a moment, I am wrong in my views can anyone propose one solid idea that would assist with this issue (if there is one)?
Bearing in mind, in my calculation, the top 6% earn, on average, in the region of €180,000 pa.
How can their burden be relieved?


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## TheBigShort (10 Sep 2017)

Duplicate


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## Gordon Gekko (10 Sep 2017)

It's simple enough really...cut the top rates of USC to bring the combined highest rates of tax/USC/PRSI to 49%.

The punter then keeps the majority of any incremental income which would have an important psychological effect.

And I stand by my suggestion that we cut the PAYE and Personal Tax Credits. There are too many people in this country who earn very little, pay very little tax, but still believe that the world owes them roast beef.


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## Sarenco (10 Sep 2017)

Or alternatively the LPT could be levied at a more meaningful rate, water charges could be re-introduced, etc.  

There are any number of ways of raising revenue but I think most people would agree that a marginal rate of 50/55% on income is probably counter-productive.


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## TheBigShort (10 Sep 2017)

Gordon Gekko said:


> It's simple enough really...cut the top rates of USC to bring the combined highest rates of tax/USC/PRSI to 49%.



How will you fund the deficit in revenues?



Gordon Gekko said:


> The punter then keeps the majority of any incremental income which would have an important psychological effect.



But that is the case already is it not? The marginal rate, USC and PRSI may all add up to greater than 50% but the effective tax rate is less than 50%.



Gordon Gekko said:


> And I stand by my suggestion that we cut the PAYE and Personal Tax Credits.



But this will increase the tax take from the people that you wish to see paying less tax.


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## Gordon Gekko (10 Sep 2017)

TheBigShort said:


> How will you fund the deficit in revenues?
> 
> 
> 
> ...



People seem very confused by the concept of marginal rates and effective rates.

Extra income for a high earner is taxed at his or her MARGINAL rate.

The effective rate is just the blended rate across all of your income.

I would like to see those on lower incomes pay more tax. Cut the 8% USC rate to 5% and cut the two main tax credits by €150.


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## orka (10 Sep 2017)

I would also like to see USC structured the way it was when it was first introduced - payable from a very low level of income.  Everybody should contribute something from their income.

I would also restore the PRSI contribution cap.  Benefits are capped and contributions used to be capped in recognition of this.


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## Brendan Burgess (10 Sep 2017)

orka said:


> Everybody should contribute something from their income.



I used to have this view, but now I am not so sure. 

From a practical point of view, as social welfare rates are so high, if you tax low earners, you reduce the incentive to work.

It would be better if they paid no tax, but put a significant amount of PRSI into a fund in their own name, and their pension would be based on this. 

We are facing a long-term problem where some professionals, public servants and the self-employed will be earning very high salaries and a lot of the rest of the jobs will be on minimum wage or low wage jobs.  I think we could address this through the tax system by having little or no tax on the minimum wage, but a bigger contribution to PRSI.

Brendan


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## TheBigShort (10 Sep 2017)

Gordon Gekko said:


> Cut the 8% USC rate to 5%



Do you have an estimate as to how much this would cost? I'm not saying I'm opposed to the idea but it the deficit needs to filled.
Your tax credit cuts will reap an extra €5-€600m but how much would the cut in USC cost?
And what impact would it have on the top 6% of earners in reducing their 49% liability?


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## TheBigShort (14 Sep 2017)

If Vradkar approves the move to take more income tax payers out of the marginal rate, which makes sense to me. How will it effect the headline stat of this topic? My estimation is that the top 6% will now pay an even higher % of the total income tax take, even though they too will benefit in monetary terms to the adjustment.
Is this fair?
https://www.rte.ie/news/politics/20...to-signal-tax-cuts-for-middle-income-earners/


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## Firefly (14 Sep 2017)

Brendan Burgess said:


> I used to have this view, but now I am not so sure.
> 
> From a practical point of view, as social welfare rates are so high, if you tax low earners, you reduce the incentive to work.



Social welfare should always be set lower than net income...it should always be worth your while taking a job.


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## TheBigShort (14 Sep 2017)

Firefly said:


> Social welfare should always be set lower than net income...it should always be worth your while taking a job.



It is. At €180 a week job seekers benefit, that's about €4.50 an hour. The minimum wage is €9.25


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## TheBigShort (14 Sep 2017)

Taken from the report posted at the start of this topic

_27. The Tax Wedge is defined as the sum of personal income tax plus employee and 
employer social security contributions together with any payroll taxes less cash 
transfers, expressed as a percentage of labour costs. It is the difference between 
what an employer has to pay in terms of gross wages plus taxes to hire an employee 
and the net income received by that employee after deduction of all taxes on their 
wages. High tax wedges particularly affect low skilled workers, second earners and 
older cohorts whose labour force participation is more sensitive to taxation. 
Reductions in the tax wedge on these groups can have significant impacts on 
participation rates which can increase medium term economic growth rates through 
the labour supply channel. 
28. Reductions in the tax wedge can also increase the demand for labour from 
employers. For these reasons, a competitive tax wedge is considered vital in 
encouraging employment growth across all income categories and to incentivise 
individuals to remain in or return to the labour market. 
29. In terms of international comparisons, according to the OECD “Taxing Wages report 
2017”, based on 2016 data, Ireland had the seventh lowest tax wedge (27.1) of the 
34 members in the OECD for a single worker on average earnings and the lowest of 
the 21 EU members of the OECD._


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