12% tax rate-article in The Sunday Times

[shnaek]

There was an article in the Times this weekend espousing the value of a single 12% income tax rate across the board. The author argued that it would do for our knowledge economy what our corporate tax rates has done for our multinational industry. He argued that we would attract the best and brightest from all over Europe to come and live here, just as we have attracted the top multinationals.

I find the argument compelling. Though I will admit that I am in favour of a single low income tax rate - and have argued for 20% many times. This man's suggestion is even more radical. But we need radical moves in Ireland at this stage, unless we wish to continue in failure.

He argued that spending would immediately increase as people would have more money in their pockets, and that house prices would rise, thus saving our banks.

He also argued that a 12% rate with no exemptions would end up bringing in around the same amount of income tax as we bring in at present.

Sorry that I don't have a link to the article - maybe someone could post one if they can find it? The author was a lecturer in the Smurfit business school as far as I recall.

If we are serious about becoming a knowledge economy, then this is the way to go. We have already seen that it works with our corporate tax rate, why not extend it to our best asset - our people.

 

[Sunny]

The idea has certain merit but can you imagine the bleating that would happen if someone on €30k was paying the same tax rate as someone on €150k.

 

[shnaek]

The idea has certain merit but can you imagine the bleating that would happen if someone on €30k was paying the same tax rate as someone on €150k.

They pay the same rate, but a lot less tax. We can't afford to have a tax system based on begrudgery. So we need to ignore the bleating and push forward. Or educate the bleaters as to how we'd be all better off in this scenario, just as we are with the corporate tax rate.

 

[TarfHead]

Sorry that I don't have a link to the article - maybe someone could post one if they can find it?

If it was in the Sunday Times, the the online version is behind a paywall.

 

[Shawady]

I have always wondered why such a system is not used. By having one rate it makes it easier to administer and if you need to raise tax income it is easy to calculate what each percentage point rise would bring in.
As Sunny has said, if it was implemented, it would result in lower paid paying more tax than they do already and higher earners paying less. I can't see any government introduce it.

 

[shnaek]

I have always wondered why such a system is not used. By having one rate it makes it easier to administer and if you need to raise tax income it is easy to calculate what each percentage point rise would bring in.
As Sunny has said, if it was implemented, it would result in lower paid paying more tax than they do already and higher earners paying less. I can't see any government introduce it.

Yes, the ease and lower cost of administration was a point he mentioned alright. The lower paid would pay a bit more, but we would all end up better off. And perhaps there could be a wage set where the tax kicked in, though the whole idea with it would be to keep things simple.
Our masters 'talk' of a knowledge economy. This would be a good way to show we are serious, and also to show we are a mature country. It could also turn out to be a very popular way to get out of our current difficulties.

 

[Shawady]

It would also encourage people to want to earn more money. I've heard of situations over the years where someone getting promoted to a higher position would not be earneing much more, because over 50% of the extra salary would be taxed. If there was just one rate , for example 20%, then they would only pay 20% tax on any extra income also.
Maybe the first 10K could be exempt (equivilant to dole) and then 20% tax on remainder.

I've just checked my last pay packet. I am a middle income earner and my paye, income levy and prsi represent 18% of my wages.

 

[Complainer]

it would result in lower paid paying more tax than they do already and higher earners paying less.

Certainly not in all cases. It has been well reported that many high earners pay little or no tax, so the 12% would actually be an improvement.

 

[Protocol]

Several eastern European countries have implemented flat taxes.

 

[Purple]

Certainly not in all cases. It has been well reported that many high earners pay little or no tax, so the 12% would actually be an improvement.

The idea that "many" pay little or no tax has been exposed as untrue in a factual manner in a thread you posted in, and yet you continue to post the same thing over and over again.

 

[Caveat]

The idea that "many" pay little or no tax has been exposed as untrue in a factual manner in a thread you posted in, and yet you continue to post the same thing over and over again.

Was thinking that.

 

[DB74]

Certainly not in all cases. It has been well reported that many high earners pay little or no tax, so the 12% would actually be an improvement.

Wasn't it Einstein who said something about madness being posting the same thing and expecting different results?

 

[DerKaiser]

I've seen that 12% figure before and I'd just like to make a couple of points:

1) People have a tendency to compare it to their marginal taxation rate rather than their average taxation rate

2) It is based on a couple of years ago before the April 2009 and December 2010 budgets (potentially bringing the figure up to approx 16%)

3) It is for income tax only and not PSRI or the levies (USC). These would add a further 11% in most cases bring the figure up to 27%.

So I think people need to look at what they are paying as an average tax rate (not their marginal one) and compare this to 27%.

You'll notice very quickly that

1) for most this would not make a big difference
2) For a sizeable number of lower paid it represents a huge additional burden
3) For a small number of high earners it represents a huge reduction in the burden.

I think most people will agree that taxes should be progressive i.e. some form of higher rate on higher incomes because the high earners can afford to pay higher rates without a similar drop in living standards.

I also think people need to see that when marginal rates are above 50% there is a serious negative incentive to putting in effort that will harm society as a whole. That's the same whether you are on €30k or €300k.

 

[shnaek]

3) It is for income tax only and not PSRI or the levies (USC). These would add a further 11% in most cases bring the figure up to 27%.

Are you sure about this? Is this the way flat rate taxes are implemented in other countries, with other taxes added under different names?

I think most people will agree that taxes should be progressive i.e. some form of higher rate on higher incomes because the high earners can afford to pay higher rates without a similar drop in living standards.

I love the way the people who came up with this tax system threw the name 'progressive' on it just to make it sound good. Flat rate tax supporters should refer to it as 'super brilliant'! Progressive is just a word. 'Unfair' is another word that could be used to describe it. 'Counter productive' or 'Anti Work'. And I agree with your last point:

I also think people need to see that when marginal rates are above 50% there is a serious negative incentive to putting in effort that will harm society as a whole. That's the same whether you are on €30k or €300k.

We should give a flat rate tax a go in Ireland, because low taxes are the only thing that have been successful in this country. Let's do for people what we've done for industry, and get this country working again.

 

[Complainer]

I guess the story about effective tax rates of between 0% and 10% for some of individuals earning between €250,000 and €500,000 per annum was just fiction then;

[broken link removed]

 

[Purple]

I guess the story about effective tax rates of between 0% and 10% for some of individuals earning between €250,000 and €500,000 per annum was just fiction then;

[broken link removed]

Well this is progressive; you've gone from "many" to "some". Maybe you'll read the facts and get closer to the truth with "a tiny number". You may also add that since the artists exemption is gone the correct term next year will be "almost none".

 

[Joe_90]

Prior to 2007 there was no restriction to the amount of capital allowances that someone could claim.
In 2007 there was a restriction on the amount of allowances an individual could claim this restriction worked by restricting the claim to 50% of the income or €250,000.

So some one with €300,000 in income could claim €250,000 in allowances so they would pay say €12,000 in tax therefore 4%. So its not fiction.

In 2010 the restriction means a max claim of €80,000 or 20% of the income. So the same person would be taxed on €220,000 or €80,000 in tax therefore 26.66%

 

[Delboy]

He argued that we would attract the best and brightest from all over Europe to come and live here, just as we have attracted the top multinationals.

don't they have some sort of very low tax rate in Spain for foreigners for the 1st 4 years they are working there, or something like that. It's done wonders for La Liga in fairness

 

[shanegl]

I guess the story about effective tax rates of between 0% and 10% for some of individuals earning between €250,000 and €500,000 per annum was just fiction then;

[broken link removed]

No, the only fiction was the spin you put on it.

 

[Purple]

Prior to 2007 there was no restriction to the amount of capital allowances that someone could claim.
In 2007 there was a restriction on the amount of allowances an individual could claim this restriction worked by restricting the claim to 50% of the income or €250,000.

So some one with €300,000 in income could claim €250,000 in allowances so they would pay say €12,000 in tax therefore 4%. So its not fiction.

In 2010 the restriction means a max claim of €80,000 or 20% of the income. So the same person would be taxed on €220,000 or €80,000 in tax therefore 26.66%

Have you read the link I posted?
Do you know what capital allowances are?