Any good report on how much income tax is paid by different groups?

[Protocol]

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The income tax system is clearly very progressive in Ireland.

 

[Protocol]

When you account for indirect taxes, the lower deciles pay more tax:

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See charts 6 and 7.

 

[Brendan Burgess]

When you account for indirect taxes, the lower deciles pay more tax:

Hi Protocol

I have exposed that particular fallacy in detail elsewhere. In short, the income of the bottom decile is half their expenditure. So the tax they pay as a proportion of their income is correspondingly higher.

And they spend a proportionately higher share of their expenditure on tobacco and alcohol which have the highest levels of indirect tax.

Most of the essentials , such as rent, food and public transport have no indirect taxes.

Brendan

 

[Sarenco]

Surely it would be very surprising if the lower deciles didn't pay a proportionately higher % of their gross income in indirect taxes?

However, it would be interesting to know how Ireland compares with other jurisdictions in terms of our levels of indirect taxes. For example, excise duties and local authority taxes are much higher in some countries than is the case here.

 

[Sophrosyne]

Also note that as market earned income is so skewed in Ireland, you would expect the higher earners to be paying most income tax.

Actually, you are right Protocol. It is probably the crux of Ireland’s problem.

According to Revenue statistical reports, 50% of tax cases consistently have gross incomes of €27,000 or less. Remember, jointly assessed married couples are counted as one tax case.

Year on year this represents 17.5% to 18.5% of the total income charged and between 2% and 4% of the total income tax/USC paid.

I reckon the preponderance of the lowest 50% are employed by indigenous SMEs who do not grow their businesses.

 

[Brendan Burgess]

The OECD has done a huge report based on the Revenue Commissioners actual data. It is so full of data, that it is a bit overwhelming. But it dispels a lot of myths. The tax system in Ireland is not only very progressive, but it has become more progressive in recent years.

Taxes, income and economic mobility in Ireland

 

[Brendan Burgess]

This really surprises me, but on reflection it probably makes sense.

32. Part of the personal income tax system is the Universal Social Charge (USC), which was
introduced in 2011 and replaced the health and income levies. The USC has some unique features: it has
four income bands for employees, corresponding to the rates of 1.5%, 3.5%, 7% and 8%, respectively
and the tax base is broader than the personal income tax base allowing fewer tax allowances and no reduction
arising from tax credits. Overall the USC increased the progressivity of the income tax system, compared
with the previous health and income levies which had flat contribution rates (Figure 6 and 7).

 

[Sophrosyne]

I think we also have to look at why the Irish tax system needs to be so progressive.

The reports states that:

2. The distribution of income before tax and transfers (“market income”) in Ireland is one of the most unequal in the OECD (OECD, 2015a; O’Connor and Staunton, 2015). There is a high concentration of income at the top of the distribution, though less so than in some other countries (Haugh et al., 2015).

High market income inequality by international standards appears to be driven to a greater extent by the lower end of the distribution: the income share of the bottom 20% households is the lowest in the OECD countries (Haugh et al., 2015, drawing on the OECD Income Distribution Database).

 

[Purple]

I think we also have to look at why the Irish tax system needs to be so progressive.

That's the wrong question; we should be asking why we have so many unskilled and low skilled people in our country.
The reason people are low paid is that they are low skilled. That's the easy bit to answer.

 

[Sarenco]

I wonder is it possible that the highly progressive nature of our income tax system and our very significant level of social transfers are having the perverse effect of actually increasing income inequality (before tax and transfers) in that they disincentive work and/innovation?

In other words, does seeking to "cure" the symptoms of income inequality at some point actually start to exacerbate the underlying problem?

 

[Sophrosyne]

That's the wrong question; we should be asking why we have so many unskilled and low skilled people in our country.
The reason people are low paid is that they are low skilled. That's the easy bit to answer.

The problem is that we have a very small indigenous economy mostly made up of small firms who cannot afford to pay OECD average levels of pay. The same unskilled or indeed skilled people can command a higher wage in other countries for exactly the same work.

 

[Gordon Gekko]

That could be a dangerous road to go down...

"Those people earn lots, so let's tax them a lot. Hmmm...they still earn lots, so let's try and reduce their income too."

Some view our system as progressive. I view it as regressive. We reward sloth and inertia and we punish success and initiative. I know people who could easily do more but they couldn't be bothered given the level of income tax and USC/PRSI.

 

[Brendan Burgess]

High market income inequality by international standards appears to be driven to a greater extent by the lower end of the distribution: the income share of the bottom 20% households is the lowest in the OECD countries (Haugh et al., 2015, drawing on the OECD Income Distribution Database).

Hi Sop

High market income inequality in Ireland? Think about it for a while. Do you really think that we are more unequal than countries like Greece or Spain which have much higher levels of unemployment and where there is a higher percentage of very wealthy people? I was intrigued by that when I saw it first as it just didn't seem right.

Income inequality is measured on a household basis. And we have around 22% jobless households in Ireland. The next highest in the EU is the UK at 13%. Countries with much higher rates of unemployment have much lower rates of jobless households?

our very significant level of social transfers are having the perverse effect of actually increasing income inequality (before tax and transfers) in that they disincentive work and/innovation?

Got it in one. For many households the level of social welfare, housing and health are so high that they prefer to remain jobless.

If we cut Jobseekers Allowance and Disability Benefit (another area where we are top of the pops) , we would find ourselves shooting up the pre tax income equality stakes.

Brendan

 

[Sarenco]

The problem is that we have a very small indigenous economy...

Does that really have a material impact on income equality? Less than 10% of the workforce is employed by foreign owned enterprises and the majority of those jobs are in the manufacturing sector, which is hardly renowned for its oversized wages.

 

[orka]

the income share of the bottom 20% households is the lowest in the OECD countries (Haugh et al., 2015, drawing on the OECD Income Distribution Database).

High market income inequality in Ireland? Think about it for a while. Do you really think that we are more unequal than countries like Greece or Spain which have much higher levels of unemployment and where there is a higher percentage of very wealthy people? I was intrigued by that when I saw it first as it just didn't seem right.

The report explains what must be at least part of the cause (but then doesn't really bring this explanation into the narrative/conclusions which might have helped readers).

"In this dataset, benefit dependence is the highest in low- to middle- income classes but it is low in the lowest income classes, i.e. the first and second deciles. This largely reflects the low take-up rate of benefits, due to the demography of deciles 1 and 2: it is composed of various kinds of groups but typically those with low earned income but no eligibility to welfare payment (for instance, tertiary students living with their parents)"

We have a young population and a large participation in third level education so it's not surprising that we have a lot of employment 'dabblers' who appear to have low incomes but are not actually seeking full-time employment (and nor does the low income have to fully support them).

 

[Brendan Burgess]

Orka

Great spot. I have never heard that explanation before. Mind you if I had read it in the report, I might not have twigged it either!

It also explains why those in the bottom decile spend twice as much as they earn. If they are students, they are presumably spending their parents' money.

Brendan

 

[odyssey06]

You will probably find that age is one of the biggest factors in determining the spread across income brackets... And remember that it's not a static list... From one year to the next, one decade to the next, those students will (hopefully!) rise from the lowest brackets into the middle and top brackets.

 

[Firefly]

You will probably find that age is one of the biggest factors in determining the spread across income brackets... And remember that it's not a static list... From one year to the next, one decade to the next, those students will (hopefully!) rise from the lowest brackets into the middle and top brackets.

The same goes for a lot of people on lower wages you would imagine. You might start low and then move up the ladder / to a different firm.

 

[Purple]

The same goes for a lot of people on lower wages you would imagine. You might start low and then move up the ladder / to a different firm.

And that's the key point when it comes to low wages and the minimum wage. In a discussion about poverty it doesn't really matter what the minimum wage is, what matters is how long people spend on it.

 

[trasneoir]

That's the wrong question; we should be asking why we have so many unskilled and low skilled people in our country.
The reason people are low paid is that they are low skilled. That's the easy bit to answer.

Source?