Cut the dole to cut higher tax rates

[TheBigShort]

So you are now agreeing that it is the marginal tax rate above a certain level and not the level of an individual's disposable income that acts as the disincentive to earning income above that particular level?

If you are then we are in violent agreement (although I wouldn't necessarily agree that an effective marginal tax rate of 40% is excessive).

I was suggesting more that to start paying 40% at an income threshold of €33,500 is excessive.
I have no problem with agreeing that high earners are being squeezed. My issue is that the proposal in the Indo is to alleviate the tax burden from high earners and to transfer it to low income earners is wrong.
The crux of this arguement is based on very dubious stats that distort reality, namely that the top 20% of earners pay so much tax relative to the bottom 80% without actually stating how much the top 20% earn (as distinct to taxable income)relative to the bottom 80%.

 

[TheBigShort]

No where does it imply if you're in the top 50% that you're overtaxed.

So just to confirm. If you are in the top 50% of income earners, contributing some 96% of the tax while the bottom 50% of earners only contribute 4%, then as a top 50% earner you are not being overtaxed? Is that what you are saying?

 

[Brendan Burgess]

Hi Shortie

I don't understand what I said wrong?

The Top 20% pay 75% of income and USC taxes
The next 30% pay 21% of taxes
The bottom 50% pay 4% of taxes.

My main point is that the bottom 50% don't pay their fair share.
The Top 20% pay too high a share.

The next 30% is less clear. I suspect married couples and parents probably pay too little, but single people without children pay too much. But neither is as clear cut as the first two.

"So at once, a taxpayer can be both undertaxed (bottom 80%) and overtaxed (top 50%) which makes no sense."

I see what you are saying but I don't see how it's what I am implying.

Brendan

 

[losttheplot]

So just to confirm. If you are in the top 50% of income earners, contributing some 96% of the tax while the bottom 50% of earners only contribute 4%, then as a top 50% earner you are not being overtaxed? Is that what you are saying?

Yep. The top 50% of earners is based on income. There could be people in that group paying relatively little tax.
It just shows how the tax take is spread out.
The difference between person at 50% (just inside the top 50%) and the person at 51% (just 1% inside the bottom earners), would be very little.

All the stats do is show the distribution.

 

[TheBigShort]

If you use an example of 100 people and rank them by earnings and assume the total tax take is €1000. Taking tax from the first 20 would give you €750. Taking the next 30 people would give €210. From the remaining 50 people, you would only collect an additional €40

How much do the top 20% earn

Hi Shortie

I don't understand what I said wrong?

The Top 20% pay 75% of income and USC taxes
The next 30% pay 21% of taxes
The bottom 50% pay 4% of taxes.

My main point is that the bottom 50% don't pay their fair share.
The Top 20% pay too high a share.

The next 30% is less clear. I suspect married couples and parents probably pay too little, but single people without children pay too much. But neither is as clear cut as the first two.

"So at once, a taxpayer can be both undertaxed (bottom 80%) and overtaxed (top 50%) which makes no sense."

I see what you are saying but I don't see how it's what I am implying.

Brendan

Perhaps you could identify

Hi Shortie

I don't understand what I said wrong?

The Top 20% pay 75% of income and USC taxes
The next 30% pay 21% of taxes
The bottom 50% pay 4% of taxes.

My main point is that the bottom 50% don't pay their fair share.
The Top 20% pay too high a share.

The next 30% is less clear. I suspect married couples and parents probably pay too little, but single people without children pay too much. But neither is as clear cut as the first two.

"So at once, a taxpayer can be both undertaxed (bottom 80%) and overtaxed (top 50%) which makes no sense."

I see what you are saying but I don't see how it's what I am implying.

Brendan

The way the tax system is set, the bottom 50% only pay so little tax due to the application of personal tax credits to their tax liability which results quite often as zero tax liability. Say an earner on €18,000.
But the exact same personal credits are applicable to someone on €100k salary.
So while the high earner may complain about the high % of tax he pays, he can rest assure, that he pays no more income tax on the first €18,000 of his income (USC aside) than someone on €18,000.
Dealing with USC I do think there is scope for change but not at the behest of transferring it from one income group (high earners) to another income group (low earners).

 

[Sarenco]

I was suggesting more that to start paying 40% at an income threshold of €33,500 is excessive.
I have no problem with agreeing that high earners are being squeezed. My issue is that the proposal in the Indo is to alleviate the tax burden from high earners and to transfer it to low income earners is wrong.

Just when I thought we were getting somewhere...

Let me try again:-

There comes a point when a marginal rate of tax starts to disincentive taxpayers from earning any income above the level at which that marginal rate applies to the point that the tax rate becomes counter-productive and results in a lower tax take. Agreed?

You appeared to suggest that the effect starts to kick in at an effective rate of 40%. I don't know the precise effective rate at which it becomes counter-productive but I suspects it kicks in at levels above 50%.

In any event, it doesn't particularly matter at what income level an excessive marginal rate becomes counter-productive - whether it kicks in at incomes above €40k or €1m it still lowers the overall tax take.

 

[TheBigShort]

Yep. The top 50% of earners is based on income. There could be people in that group paying relatively little tax.
It just shows how the tax take is spread out.
The difference between person at 50% (just inside the top 50%) and the person at 51% (just 1% inside the bottom earners), would be very little.

All the stats do is show the distribution.

And thats exactly my point. The difference between two earners could be relatively tiny. But when presented as the top 50% pay 96% v bottom 50% paying only 4%, it creates a distortion that the bottom are getting a free ride, while the top "pay for everything".

 

[Sarenco]

Dealing with USC I do think there is scope for change but not at the behest of transferring it from one income group (high earners) to another income group (low earners).

So what do you propose - reduced public expenditure?

 

[Sarenco]

And thats exactly my point. The difference between two earners could be relatively tiny. But when presented as the top 50% pay 96% v bottom 50% paying only 4%, it creates a distortion that the bottom are getting a free ride, while the top "pay for everything".

Where's the distortion?

As losttheplot says all the stats show is the distribution of which cohorts pay what share of taxes.

 

[TheBigShort]

Where's the distortion?

As losttheplot says all the stats show is the distribution of which cohorts pay what share of taxes.

The distortion is that the stats imply a huge differential between the tax paid by different income groups when in reality, it may only be a small difference.
This applies also to the top 20% paying 75% and the top 1% paying 19% etc.
So what! None of this is relevant until you know how much people earn.

I gave the example of two workers, one earning €50,000 the other €10,000. Both pay 50% on income, €25,000 + €5,000, total €30,000 tax paid. All fair and square.

But the higher earner (representing the top 50% of earners) pays 83% of the tax, while the bottom 50% ( the low earner) pays only 17%.
And it is these type of statistics (a % of a %) that are open to manipulation and misinterpretation, giving the distortion that a particular income group pays too high a portion of tax whereas the other income group is on a 'free ride'.

 

[zephyro]

It's time for the top earners to shout stop.

Sounds great Brendan but have you any practical suggestions about what we do next?

Here is a suggestion, if lower earnings provide for a free ride, take a pay cut!

Right, which is what I effectively did. A marginal direct tax rate of ~50% along with indirect taxes of ~10% seemed like a waste of my time so instead I'm a contractor taking a salary of €33,800, making the maximum company pension contributions and taking plenty of time off.

 

[Brendan Burgess]

And it is these type of statistics (a % of a %) that are open to manipulation and misinterpretation, giving the distortion that a particular income group pays too high a portion of tax whereas the other income group is on a 'free ride'.

OK, I see the point you are making now.

The bottom 50% of cases earn 18% of the income and pay 3.7% of the tax.

No one statistic conveys all the information.
That is why I give a lot of information.

I note you didn't seem to take any issue with Seán Healy's statistic that the bottom 10% of earners pay 30% of their income in indirect taxes.

Brendan

 

[TheBigShort]

OK, I see the point you are making now.

The bottom 50% of cases earn 18% of the income and pay 3.7% of the tax.



I note you didn't seem to take any issue with Seán Healy's statistic that the bottom 10% of earners pay 30% of their income in indirect taxes.

Brendan

Granted, Sean Healy figures were incorrect. But he also doesnt speak for me. But while we are at it, the cost of necessities such waste disposal, electricity, groceries, clothing, takes a higher % proportion of income out of a low paid worker than a high earner.
From my own experience, two working adults, two children, mortgage, childcare etc, there is not much change out of €80,000 pa. So how imposing further taxes on a couple on €40,000 makes sense, I do not know.

 

[Sarenco]

Or the top 1% of earners share ~10% of all income and pay ~19% of all income taxes.

 

[TheBigShort]

Or the top 1% of earners share ~10% of all income and pay ~19% of all income taxes.

Very good, now we are getting it. So to illustrate further. Lets say we apply a €1,000 tax credit to my two workers above.
This reduces the total tax take to €28,000 (€24,000+€4,000). All fair and square still, yes?
But wait, now the high earners % contribution has increased from 83% to 86% of the total tax take and the low earners contribution has reduced to 14%. How can this be? Both receive the same personal tax credits and both pay same tax rates, but the higher earners % proportion has increaed. And according to the argument put forward here, this is unfair and some of the tax liability needs to be transferred from the high earner to the low earner.

 

[Rory_W]

for those interested in the statistics [broken link removed]

 

[Sarenco]

Very good, now we are getting it.

Sorry, I've no idea what point you are trying to make.

The example you gave above is bizarre - a taxpayer earning €10k doesn't pay the same amount of tax as a taxpayer earning €50k.

 

[TheBigShort]

Sorry, I've no idea what point you are trying to make.

The example you gave above is bizarre - a taxpayer earning €10k doesn't pay the same amount of tax as a taxpayer earning €50k.

Oh dear, you do realise that it was an example to illustrate the point. But just in case you cant figure that much out, lets apply real stats.
Two workers, one on €30,000 and one on €20,000. Both pay 20% on their incomes (€6,000+€4,000 - €10,000 in total). The higher earner (representating the top 50% of income earners) pays 60% of the tax take contributed between them. The lower earner contributes 40%.
Apply a personal tax credit of say, €2,000. Now the total tax take is reduced to €6,000 (€4,000+€2,000). But the % contributions have increased for the higher earner to 66% and reduced for the lower earner from 40% to 33%.
Add a third earner on €40,000, paying 40% on the €10,000 above €30,000.
Initially his total tax contribution is €10,000 ( €30,000@20% - €6,000 and €10,000@40% - €4,000.
This brings total tax take to €10,000+€6,000+€4,000= €20,000.
Now the top earner (representing the top 33%) contributes 50% of the total tax while the other 66% of earners contribute 50% also.
Throw in the personal tax credits of €2,000 each then the total tax take is reduced to €8,000+€4,000+€2,000 = €14,000. Of which the top 33% of earners now contribute 57% of the tax whilst the other 66% only contribute 43% between them.
Add a fourth worker on €50,000 and the process continues to diminish the % contribution of lower earners while increasing the % contribution of higher earners giving the impression that low paid workers dont pay their fair share.
The fact is, even if you earn €150,000, your tax contribution to public finances on your first €20,000 of that income is the same as someone who only earns €20,000 in total.
The rest of your tax contribution on the remaining €130,000 is not comparable with someone on €20,000 as they dont have that income to be taxed in the first instance.
And what is being proposed is a transfer of some of the tax liability of €130,000 to the earners on €20,000.

 

[Sarenco]

The rest of your tax contribution on the remaining €130,000 is not comparable with someone on €20,000 as they dont have that income to be taxed in the first instance..

So your point is that somebody on €150k pays the same rate of tax on their first ~€20k of income as somebody on ~€20k total. Is that it?

What exactly that proves is beyond me but do tell...

 

[TheBigShort]

So your point is that somebody on €150k pays the same rate of tax on their first ~€20k of income as somebody on ~€20k total. Is that it?

What exactly that proves is beyond me but do tell...

It proves that low paid workers are not on a free ride.