Cut the dole to cut higher tax rates


DCD, I also raised the point about the inefficiencies of the public service and how money is spent. If a private company and the public service put out a tender for the exact same job, you can bet your bottom dollar that the public service job would be more expensive. Why? It's not their money, they think it's a bottomless pit of money, when it's not. Is there any world class public service provided in Ireland? Everything is just kept ticking along. No need to try to excel at any public service. You would think with a country as small as we are, it would be easier to provide a world class service in for example, broadband. That would attract internet based companies. Or how about great rail links? Or town planning? Not a chance


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Hi Shortie

First of all, this is an newspaper article of 1,300 words. I had edited down from the first version. Had it been an academic paper or presentation, I would have gone into a lot more example and a lot more statistics. For example, I had a big bit in it about how the "squeezed middle" is a myth and the reality is that married people and people with kids are not squeezed, whereas single people are squeezed a bit. But I am hoping to do a separate article on that issue alone.

I will come back to you on the interpretations of the various statistics and I will double check my calculations.

But, first, can you tell me if you agree with any of the following core facts in the article. For the moment, let's leave aside the question about whether it is fair or not.

1) The higher paid, whether you define them as the top 10% or the top 20%, pay most of the income tax and USC in Ireland?
2) The lower paid, again, however you define them, pay virtually no income tax or USC in Ireland?
3) Irish lower and middle paid, pay around half the rate of PRSI as their equivalent in the UK, but Irish people get far higher social welfare? 4) The Irish higher paid - pay around the same levels of social insurance in the UK but get much lower benefits? (This is a summary of a very complex scheme in the UK, but I think it's generally a fair summary for people earning from €80k up to about €200k.)
5) The higher the level of social welfare benefits and payments, the less incentive there is for someone to work? This is not a moral comment, it's just something which I think is self-evident. But I would like to know whether you agree with that or not.
 
I think it would be very hard for anyone to reasonably argue against any of those 5 assertions.

For what its worth my tupenceworth would be that whilst the populist opinion would be that it would be socially unjust to cut the dole to cut income tax, it would in fact be fairer on those who pay the tax and shoulder the burden.

It might also incentivise dole recipients to obtain employment.
 

Yes I would agree with the core facts as outlined but I would disagree with your analysis of what all of it actually means.
Taking 1) for starters. The first thing to note is that in any progressive taxation system, higher earners will always contribute a higher amount of taxation than lower income earners. If the tax rate is 50% on all income and you earn €100,000 and I earn €20,000, then you will contribute €50,000, I will contribute €10,000. That sounds fair does it not? Total contribution €60,000.
Between the two of us, the top 50% of earners (you) contributes a whopping 83% of the total take whereas the bottom 50% of earners (me) only contribute 17% of the tax take. Even though we both contribute 50% of our incomes, using the "top 10%", the "top 20%" etc is open to manipulation and misinterpretation.
 
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Brendan Burgess said:
2) The lower paid, again, however you define them, pay virtually no income tax or USC in Ireland?
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The lower paid that pay virtually no income tax or USC is a cause of their incomes being so low. There may be scope for cobtributions under USC, but as far as income tax goes, it is their personal tax credits, when applied to their tax liability, that ultimately returns a zero sum tax liability return.
But the thing to note here is that those same personal tax credits are applied to higher earners also. So even if I earn €100,000 and pay thousands in income tax, I can understand that the level of taxation applied to the first €20,000 of my income will be the same as someone who only earns €20,000.
 
Brendan Burgess said:
3) Irish lower and middle paid, pay around half the rate of PRSI as their equivalent in the UK, but Irish people get far higher social welfare?
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If you take this in isolation it would appear that something is wrong. But you would need detailed analysis to determine what is actually wrong.
For instance, taking that point in isolation, it is equally valid to suggest that welfare rates are far too low in the UK, as it is to argue welfare rates in Ireland are too high.
 
The lower paid in Germany pay many multiples of what they do here in Ireland according to a debate I heard on national radio recently. Sweden also.
Are they not the countries the Irish Left aspire to...'the Nordic model' we hear so much praise of?
 
Brendan Burgess said:
5) The higher the level of social welfare benefits and payments, the less incentive there is for someone to work?
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True, to a point. But as most people want to work, as most people want financial independence over welfare dependency, then the availability of suitable employment will act as detterent to this.
For sure, there are instances of low paid part-time work in receipt FIS, rent supplement etc. But in the main this applies to a small portion of welfare recipients.
 
Delboy said:
The lower paid in Germany pay many multiples of what they do here in Ireland according to a debate I heard on national radio recently. Sweden also.
Are they not the countries the Irish Left aspire to...'the Nordic model' we hear so much praise of?
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But this is not what is being proposed here. What is being proposed is to cut welfare benefits and tax low paid workers in order to provide tax cuts for higher earners.
 
TheBigShort said:
The implied sentiment inherent in the Indo article is that those on low incomes and welfare are lazy, unreliable and costly to society.
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Not at all. Economics is the dismal science of how human beings react to financial dynamics. The most dedicated brain surgeon, if offered the same level of income from the State for doing nothing, would probably opt to improve her golf handicap
 
Duke of Marmalade said:
Not at all. Economics is the dismal science of how human beings react to financial dynamics. The most dedicated brain surgeon, if offered the same level of income from the State for doing nothing, would probably opt to improve her golf handicap
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Yes, perhaps. But we know the state is not affording such levels of income. In fact JSA starts at €100 for U25's of which there are some 40,000.
Are you suggesting that this €100 is deterring young people from taking up employment?
 
TheBigShort said:
Yes, perhaps. But we know the state is not affording such levels of income. In fact JSA starts at €100 for U25's of which there are some 40,000.
Are you suggesting that this €100 is deterring young people from taking up employment?
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You are a great man for the false dichotomies!
 
The majority of minimum wage earners in Ireland are women from middle-income families.
Can we stop the nonsense that young people entering the workforce are on the minimum wage or that they will stay on the minimum wage. Less than 5% of the workforce are on the minimum wage. It is not relevant in the context of this discussion.
The problem is that welfare provides a viable alternative to work for some people while hard work and innovation is punished with 52% marginal employee payroll taxes.
 
High marginal rates of tax have a multiplier effect on the real taxes paid.

Here’s an example;


My Landlord, a higher rate tax payer, has to pay property tax in the house I live in. The tax bill is (for example) €600. He has to earn €1250 to net the €600 so he increases my rent by €100 a month, taking a net reduction of his income of €50. I have to earn €209 to end up with €100. That’s an annual cost of €2500

The bottom line is that a tax bill to my landlord of €600 costs me €2500.


I should be allowed to pay the property tax directly and save myself €1250 a year.


If both my landlord and I were both earning €18000 a year then the cost of the property tax would be €600. Then again if I was earning €18000 a year I would have a house provided for me by my higher marginal tax paying neighbours and I wouldn’t have to pay property tax at all.
 

We've been through all this before. For sure, there are anomalies in the welfare system that provides viable alternatives to work. But in the main, this will be toward the thin end of the wedge. The notion of cutting dole, or imposing tax increases on low paid workers in order to offer tax cuts for higher earners, is simply absurd.
 
TheBigShort said:
The notion of cutting dole, or imposing tax increases on low paid workers in order to offer tax cuts for higher earners, is simply absurd.
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This is not reflected in the article as far as I can see, but only in the title of this thread?
 
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