Those who earn more ,should pay more

[Sunny]

Why? We're talking here about rates, not amounts. This principle already applies to almost all other taxes.

You either believe the marginal value of income declines the more you earn or you don't.

A true flat tax assumes no credits, allowances, deductions etc and taxes everyone the same rate on every cent they earn. Now, I am all for lower taxes but I also recognise asking someone on €15,000 to pay 40% on all their income is not the same as asking me to pay 40% on my income. Every cent of their €15k probably goes towards essential costs of living. Mine doesn't.

That's not a justification for taxing me to the hilt. It's just I recognise the fairness of a progressive system despite it's flaws.

This debate is going on in the US at the moment. Will be interesting to follow.

 

[T McGibney]

Except that nobody is paying 40% of their entire income in income taxes. Yet everyone (including the person earning €15k) is probably paying 40% (or damn near it) of their income in taxes, when indirect and stealth taxes are included.

The various tax collection systems are so complex, opaque and multi-faceted that nobody realises just how ridiculous their outcomes are. The opposition to almost any move towards simplification is generally based on the supposition that low-earners don't pay tax. This is patently untrue.

There is no fairness in the poverty and evasion traps inherent in all so-called 'progressive' tax systems.

 

[Sunny]

Except that nobody is paying 40% of their entire income in income taxes. Yet everyone (including the person earning €15k) is probably paying damn near 40% of their income in taxes, when indirect and stealth taxes are included.

The various tax collection systems are so complex, opaque and multi-faceted that nobody realises just how ridiculous their outcomes are. The opposition to almost any move towards simplification is generally based on the supposition that low-earners don't pay tax. This is patently untrue.

There is no fairness in the poverty and evasion traps inherent in all so-called 'progressive' tax systems.

But we are talking about income taxes here and the introduction of a flat rate tax which would mean people a rate (40% or whatever) on all their income.

I agree with you about the amount of indirect and stealth taxes but that's why when people say we should simplify the income tax system, it is very difficult to do.

 

[T McGibney]

But we are talking about income taxes here and the introduction of a flat rate tax which would mean people a rate (40% or whatever) on all their income.

I agree with you about the amount of indirect and stealth taxes but that's why when people say we should simplify the income tax system, it is very difficult to do.

But people are already paying the same amount of their income in taxes, they just don't realise it.

You say that it is difficult to simplify the tax system. I profoundly disagree. There are probably a hundred simplification measures that could be introduced in the morning if there was a political will to do so.

 

[csirl]

But we are talking about income taxes here and the introduction of a flat rate tax which would mean people a rate (40% or whatever) on all their income.

I agree with you about the amount of indirect and stealth taxes but that's why when people say we should simplify the income tax system, it is very difficult to do.

A flat rate tax would be much lower than people's perception. If there was a flat rate tax in Ireland for 2011 it would be c.17.67%.

Income tax receipts = 11,530m (Book of Estimates)
Average Earnings = 687.24 per week (CSO - Q2 2011).
No. of people employed = 1.821m (CSO - Q2 2011).

This percentage is probably on the high side as it doesnt take income account income tax paid by pensioners, so it could be 1 or 2% lower than my calculations suggest.

I think most people would prefer to pay a flat rate tax in the 16-18% rate than what we currently have.

 

[Sunny]

But people are already paying the same amount of their income in taxes, they just don't realise it.

.

How? When so many people don't even pay income tax even if they might pay a levy? This is just about income tax

 

[Complainer]

Yeah, in a very juvinile and satisfying way!

Maybe the file name was meant to be a hint at a proposed new tax - one that would hit Askaboutmoney.com harder than most.

But if there's no quantitive analysis, how do we know? We can suppose all we want, but until then the only real proportional and actual analysis of tax paid and earnings is income tax.

That's a very blinkered view - it's hard to work out the numbers, so we'll just ignore them. That's not the basis for any sound policy.

I would guess they are also more likely to spend that income on 0% or lower VAT rate products.

To some extent yes, but if the stereotypes are to be believed, much of the spending would be on products with high customs levies (booze and fags), so that needs to be part of the equation too.

 

[T McGibney]

This is just about income tax

But you can't have a meaningful discussion of tax policy and confine it merely to income tax, especially since our politicians are seemingly mortally afraid to raise income tax rates and we end up accordingly with USC, PRSI and stealth tax hikes instead of old-style tax increases. Hence my wishes for a more sensible, honest and simplified system.

 

[Sunny]

A flat rate tax would be much lower than people's perception. If there was a flat rate tax in Ireland for 2011 it would be c.17.67%.

Income tax receipts = 11,530m (Book of Estimates)
Average Earnings = 687.24 per week (CSO - Q2 2011).
No. of people employed = 1.821m (CSO - Q2 2011).

This percentage is probably on the high side as it doesnt take income account income tax paid by pensioners, so it could be 1 or 2% lower than my calculations suggest.

I think most people would prefer to pay a flat rate tax in the 16-18% rate than what we currently have.

It's a bit more complicated than that I am afraid. You can't just use the average wage to come up with a rate.

 

[Sunny]

But you can't have a meaningful discussion of tax policy and confine it merely to income tax, especially since our politicians are seemingly mortally afraid to raise income tax rates and we end up accordingly with USC, PRSI and stealth tax hikes instead of old-style tax increases. Hence my wishes for a more sensible, honest and simplified system.

Grand, but I was never talking about the wider tax system. I was responding to posts about the idea of introducing a flat rate income tax rate and its implications on higher and lower income earners. If you want to broaden the discussion, work away.

 

[T McGibney]

Grand, but I was never talking about the wider tax system. I was responding to posts about the idea of introducing a flat rate income tax rate and its implications on higher and lower income earners. If you want to broaden the discussion, work away.

But for the nth time, you can't meaningfully discuss the idea of flat-rate income tax, and more particularly your own contention that this would be 'unfair' to low-earners, without considering the existing overall tax burden suffered by low-earners.

 

[Sunny]

But for the nth time, you can't meaningfully discuss the idea of flat-rate income tax, and more particularly your own contention that this would be 'unfair' to low-earners, without considering the existing overall tax burden suffered by low-earners.

But what is your point about the overall tax burden suffered by low-earners?

You made the point that people are already paying the same amount of their income in taxes without realising it. How do you work that out?

 

[T McGibney]

I don't have any particular point to make about the overall tax burden suffered by low-earners.

I merely queried the following statement, on the grounds that low-earners are already suffering what is for them a significant tax burden.

I was simply arguing against the principle that we introduce a flat rate of tax and everyone pays it on every cent they earn and then call it fair.

 

[csirl]

It's a bit more complicated than that I am afraid. You can't just use the average wage to come up with a rate.

It isnt complicated. You just multiply the average wage by the number of people employed to get the total amount of taxable income earned in the country. The amount the Government wants to take in is a percentage of this. It is that simple - which is one of the big advantages of the flat rate tax.

 

[DerKaiser]

A flat rate tax would be much lower than people's perception. If there was a flat rate tax in Ireland for 2011 it would be c.17.67%.

Income tax receipts = 11,530m (Book of Estimates)
Average Earnings = 687.24 per week (CSO - Q2 2011).
No. of people employed = 1.821m (CSO - Q2 2011).

This percentage is probably on the high side as it doesnt take income account income tax paid by pensioners, so it could be 1 or 2% lower than my calculations suggest.

I think most people would prefer to pay a flat rate tax in the 16-18% rate than what we currently have.

Those income tax receipts look more like 2010 numbers, €14bn is targetted for collection in 2011 (http://www.finance.gov.ie/documents/exchequerstatements/2011/analtaxsept.pdf)

This would push up the flat rate to 22%. Also note that the 4% rate of PRSI would need to be added on to give a total flat rate of 26%.

Someone on €100k would gain €15k from this regime, increasing disposable income by 25%.

A married couple on a combined income of €50k would lose €6k or the equivalent of half a mortgage payment on a €200k mortgage each month.

Every single person on an income of less than €40k (and couples with joint incomes below €80k) will be worse off under your proposal. Am I right or wrong?

Most people would be worse off, as many people on lower incomes need to pay more tax to pay for higher tax savings for fewer people on higher incomes.

 

[Chris]

Hang on Chris. I like your posts but you are ideologically driven. I am going to make an assumption that you come from the Austrian school of economics judging by some of your comments but could be wrong. Nothing wrong with that as long as long you recognise that you are not coming from a neutral bias just like me. Again nothing with that but we have to remember this is the real world with people and not some academic exercise.

Yes indeed, I would class myself as a follower of Austrian Economics. But flat rate taxation is not just an ideology. There was a time when the US had a flat rate of income tax, and that was 0%. Nobody complained about the rich not paying there fair share in the US from 1776 to 1913 when the constitution was amended to introduce a federal income tax. And most of that period was the most prosperous in US history.

The story of your friend is great but why not substitute it for someone that lives on the poverty line and explain to them why earning that extra euro just isn't worth their while because they will have to pay more tax. I work in investment banking, I believe in capitalism, I believe in the Market, I believe in earning money is good and I believe in striving to work as hard as you bloody can. What I don't believe is that the tax system is some academic exercise that doesn't have severe consequences for many genuinely struggling people. I earn a good salary. Have no problem paying tax to help the less fortunate. I just don't want people to take the **** out of me!

Also this assumption that only people who earn high wages work hard and sacrifice family life is rubbish and is snobbish. There are people working multiple low paid jobs to make ends meet. There are people doing minimum wage night work where they sacrifice family life. There are people earning average salaries who sacrifce family life every day. That is not the taxmans fault.

I absolutely agree that there are people out there working more than one low paying job, or working very hard for their weekly wage, but would they do so if they got less than 50% of the money they earned? I think a lot of people would not. My point was more to highlight the fact that (a) the majority of "the rich" work extremely long hours for many years before they make that money and (b) that they are driven by the possibility to take home that money.
The best motivating factor to work hard is the money you take home at the end of the day; reduce that amount through taxation and people will not work as hard as they otherwise would.

But we are talking about income taxes here and the introduction of a flat rate tax which would mean people a rate (40% or whatever) on all their income.

I agree with you about the amount of indirect and stealth taxes but that's why when people say we should simplify the income tax system, it is very difficult to do.

I think that simplification of the tax system would be a lot simpler than many would assume. First thing to do would be to throw out the old tax code in its entirety and start from scratch. The new system should then be so simple as to require a minimum paper work and as few as possible rates and types of taxes.

I would agree that selling a flat 40% tax rate would be very difficult, but as I said before it should be sold so that the majority of earners pay less. csirl has made a good start with the 17%, but I would go quite a bit lower than that. This would also only be possible if there was some severe cutbacks in what government provides.
Unfortunately this country is in a situation where 50% of earners do not pay income tax, and that is simply unfair on the remainder of the income tax payers; unfortunately this will mean that quite a few people will end up paying more taxes, that would not be avoidable.
Ideally I would like to see a 0% flat income tax rate, which would be easiest to sell on its own. Taxes should then be collected through excise and sales taxes, which could even be progressive. This would result in a huge incentive to work harder with a disincentive to spend.
As already mentioned though, this would require some serious cutting of government.

 

[Firefly]

Ideally I would like to see a 0% flat income tax rate, which would be easiest to sell on its own. Taxes should then be collected through excise and sales taxes, which could even be progressive. This would result in a huge incentive to work harder with a disincentive to spend.
As already mentioned though, this would require some serious cutting of government.

Hi Chris,

I would imagine that excise and sales taxes would rise astronomically under this model to bring in funds for the government. Surely this would make us extremely uncompetitive as a country to do business in? In addition, with the advent of the internet and the open border with Northern Ireland raising sales taxes may be counter-productive anyway? Having said that, I'm all for a 0% rate of income tax

 

[Chris]

Hi Chris,

I would imagine that excise and sales taxes would rise astronomically under this model to bring in funds for the government. Surely this would make us extremely uncompetitive as a country to do business in? In addition, with the advent of the internet and the open border with Northern Ireland raising sales taxes may be counter-productive anyway? Having said that, I'm all for a 0% rate of income tax

Only if you maintain the current level of government spending, which, as shouldn't come as a surprise to many here, I believe could and should be cut "astronomically". The long term affect would be that many wealthy people would move here, and wealthy people spend quite a bit of money, which would result in increased sales tax revenue. It would also mean that a lot more would be invested here, meaning that there would be a lot more job creation, resulting in less dependence on state welfare.
In the short term of course this is a bit more difficult, and deficit spending should be avoided. Any revenue shortfall should be covered by selling off state assets and drastic spending cuts.
The biggest advantage of having a sales tax is that government is kept in check. If government raises sales taxes too high, then people will spend less resulting in less revenue. With income taxation there is no way of not paying it to voice your objection, the only option is to leave or earn less, neither of which is a desirable outcome.

 

[Firefly]

Only if you maintain the current level of government spending, which, as shouldn't come as a surprise to many here, I believe could and should be cut "astronomically". The long term affect would be that many wealthy people would move here, and wealthy people spend quite a bit of money, which would result in increased sales tax revenue. It would also mean that a lot more would be invested here, meaning that there would be a lot more job creation, resulting in less dependence on state welfare.
In the short term of course this is a bit more difficult, and deficit spending should be avoided. Any revenue shortfall should be covered by selling off state assets and drastic spending cuts.
The biggest advantage of having a sales tax is that government is kept in check. If government raises sales taxes too high, then people will spend less resulting in less revenue. With income taxation there is no way of not paying it to voice your objection, the only option is to leave or earn less, neither of which is a desirable outcome.

It would be lovely to wave a magic wand and arrive at this situation, however I'd imagine there would literally be blood on the streets if this was implemented. Given the nature of politics here and the voting system, no political party would even consider it. Finally, if it was implemented, then IMO it would only be a matter of time before the old ways crept back in....a td getting a new road built in his constituency etc etc.

Sadly, I think that all we can hope for is reduced government spending on a gradual scale, but I have my doubts here too

 

[shnaek]

if it was implemented, then IMO it would only be a matter of time before the old ways crept back in....a td getting a new road built in his constituency etc etc.

Sadly, I think that all we can hope for is reduced government spending on a gradual scale, but I have my doubts here too

I think you are very right there. But we can dream