Lower tax rates for the rich

BroomBurner

It was proposed to me recently that those earning more money shouldn't necessarily be puished for working hard through having to pay higher tax rates.

The discussion came about following Michael Caine's slightly self-absorbed comments on the "3.5 million layabouts (he) has to get up at 6am to work hard to pay for", which, at the age of 76, he is entitled to say. I included the self-absorbed part as I'm sure some of those "layabouts" may have just been made redundant but would work if they could.

Anyway, got us thinking. What would be the effect of a lower tax for higher earners? Say, a standard 25% tax for anyone earning up t €50,000, then 23.5% for the next €100,000 and 20% for anything earning over it.

I know the first answers may include "lower tax take for the state", "the rich getting richer", etc., but I'm asking the question, unbiased and looking for unbiased, economic answers. Would it push lower earners to better themselves and their situations? How would this effect Ireland's economy?

francish

BroomBurner wrote: »

It was proposed to me recently that those earning more money shouldn't necessarily be puished for working hard through having to pay higher tax rates.

The discussion came about following Michael Caine's slightly self-absorbed comments on the "3.5 million layabouts (he) has to get up at 6am to work hard to pay for", which, at the age of 76, he is entitled to say. I included the self-absorbed part as I'm sure some of those "layabouts" may have just been made redundant but would work if they could.

Anyway, got us thinking. What would be the effect of a lower tax for higher earners? Say, a standard 25% tax for anyone earning up t €50,000, then 23.5% for the next €100,000 and 20% for anything earning over it.

I know the first answers may include "lower tax take for the state", "the rich getting richer", etc., but I'm asking the question, unbiased and looking for unbiased, economic answers. Would it push lower earners to better themselves and their situations? How would this effect Ireland's economy?

I dont know why you would lower the rate as income increases
Though, I welcome a post that at least does not trot out the usual tax the rich and and does not consider the implications. I think your idea of a decreasing rate as income rises is taking it a bit too far, looking to decrease the difference between top rate and standard rate would be an improvement.

jaffa20

In fact, i think the levy should have been spread more fairly.

• 2% on income up to €75,036
• 4% on income from €75,037 to €174,980
• 6% on income above €174,980

The above is just ridiculous.

So someone earning 20k pays the same percentage as someone on 75k

Erm, add a percent for each 10 k is what i would have done starting at 1 percent for 20-30k etc etc.

greendom

A fundamental part of most tax systems is that they are equitable (fair). To my mind that means that those most able to pay should pay more.

There are many social studies that go to prove that the more equal a society is, the happier. This is not advocating communism, but where there is less of a gap between rich and poor, societies generally work better. Ireland really needs to narrow that gap not the other way round. Not to a level that would be a constraint on enterprise, but to a higher level than at present.

And why the blanket notion that if you are rich you must have worked hard. the other side of this coin is then if you are poor you don't. It's clearly nonsense. Just as there are many rich people who don't work hard, there are as many poor people that do,

Stheno

jaffa20 wrote: »

In fact, i think the levy should have been spread more fairly.

• 2% on income up to €75,036
• 4% on income from €75,037 to €174,980
• 6% on income above €174,980

The above is just ridiculous.

So someone earning 20k pays the same percentage as someone on 75k

Erm, add a percent for each 10 k is what i would have done starting at 1 percent for 20-30k etc etc.

Perhaps quote the full figures??

Someone on 20k per year pays tax of 20% on their taxable income less credits, then the 2% levy on all of their income, then PRSI of on all but the first €127 per week

Someone on €75,038 pays tax of 20 % on the first €35,400 less credits, then tax of 41% on the income above that, plus 2% on all income to €75,037, and 9% PRSI on all of that income bar the first €127 per week, after €75,037 they pay a 4% levy and 5% PRSI.

So on balance, someone on €20 k will pay total tax of per year

Net Tax (€340.00)
PRSI (€536.00)
Income Levy (€335.00)

Total : €1211
(see the tax calculators above, calculation based on single person, no dependants etc, using Deloittes calculator),
whilst someone on €75038 will pay tax of

Net Tax (€19,462.00)
PRSI (€2,736.00)
Health Contributions (€2,511.00)
Income Levy (€1,255.00)

€25,964

As a percentage of both incomes, for the person on €20k it's 6.055% and for the person on €75,038 it's 34.6% of their gross income.


That's over five times the amount of tax the person on 20k pays!

Or to put it more succinctly, the difference in net income is €18,790.00 vs €49074.

So earning 3.75 times as much gross, gives you 2.61 times the net income.




There is an economic argument (it came up in discussion with an economist recently) that says that one can only tax "high earners" up to a limit of approx. 50% after which it becomes non productive overall, the economists here might have some idea what I am talking about.

ixoy

I saw there was outrage among the rich in Britain when the high tax band there was raised to I think 49% for those on 150k above (I'm assuming they've multiple tax bands? Doesn't seem too bad next to ours).

Their reasoning was that being highly taxed was a dis-incentive to work hard and achieve success. Them being successful, they argued, had great economic benefit because their businesses and interests generated jobs and other revenue streams for the economy. Tax them highly and they'd wonder why they'd bother.

Stheno

ixoy wrote: »

I saw there was outrage among the rich in Britain when the high tax band there was raised to I think 49% for those on 150k above (I'm assuming they've multiple tax bands? Doesn't seem too bad next to ours).

Their reasoning was that being highly taxed was a dis-incentive to work hard and achieve success. Them being successful, they argued, had great economic benefit because their businesses and interests generated jobs and other revenue streams for the economy. Tax them highly and they'd wonder why they'd bother.

Well put it this way, if you are on 35,400 per year basic and just inside the 20% tax net, would you want to do overtime, when based on an average working week of 40 hours, you'd be paid approx. €13 per hour for a normal day, but approx. €10 per hour for every hours overtime after tax, as it would put you in the higher band? That's just calculated on income tax, not PRSI and levies btw?

I know I want to be paid overtime at overtime rates, regardless of tax to reflect my additional effort ?

johnnyskeleton

The most important point to consider is the laffer curve. This curve demonstrates that after a certain point, increases in the tax rate brings in a lower tax take overall.

For a simple example, someone earning €100k per year (let's say €50k basic, €50k bonus/commission/salary) is happy to work hard because tax is at 49%. But if the government increase the tax rate by 2% to 51% he thinks that since he is paying more than half of every extra euro in tax, instead of working harder he is going to spend more time with his wife and kids (or on the golf course). At the higher rate his productivity falls and he earns €80k

So the tax take at 49% is €49k (49% of €100k), but when the tax rate is increased to 51% the tax take is only €40.8k (51% of €80k).

This is a very simple example, but it demonstrates that a seemingly small increase in tax discourages productivity and thus the increase in rate actually results in less tax collected. The opposite is true, and during the mid 90s as income tax rates went down the tax take shot up as people were encouraged to work harder and make more money which would be taxed at the reasonable higher rate of 41%. When the higher rate was 60% it pretty much discouraged productivity at the higher end of the economy.

Another facet to it is that the higher the tax rate, the more people are encouraged to avoid, and in extreme cases evade, paying tax.

So lets say our €100k is on a fixed salary (i.e. not linked to productivity) but with taxes increased he decides to ramp up his pension or invest in a tax incentivised scheme. So while he still pays tax at the higher 51% rate, he pays less tax as he has increased his tax free deductions.

Let's take another guy who runs his own company. Instead of drawing his €100k salary and buying a new car, he decides to pay himself €70k and buys himself a company car which he doesn't declare as a benefit in kind. Or, lets say that he pays himself off the books. In both cases it results in less tax to the revenue (albeit by committing a criminal offence). He is normally a law abiding citizen who is happy to pay his taxes, but because he perceives this tax of 51% to be unfair (he is already taxed to the hilt and paying more tax than people earning less than him, and he considers himself more productive than lower earners) and also because, in the *percievedly* unlikely event of him being caught, he can get away by paying a small fine to revenue, he decides to do it this way.

Lets take a different example, a millionaire playboy who travels the world (mostly the EU) doing business. Let's say that Ireland has a 40% playboy tax, the Netherlands has a 30% tax. He lives in Ireland because that's where he was born, and doesn't mind paying the extra 10% tax for his country. However, recently the country has gone down the swanny, through no fault of his, and while the Netherlands have dropped their playboy tax to 25%, Ireland has increased it to 50% on the back of people saying "the rich caused this mess, so they should pay more" and the like. So what does he do? Instead of getting 40% of €1m (i.e. 400k) we now get nothing.

What's more, Ireland has been a tax haven for businesses and others for the last few years. That was the basis of our prosperity. If we increase taxes now (and if you really want to tax the rich and make money out of it, look at our low low corporation tax) we will lose out to other, better tax havens.

So taxing the rich is a quick fix rather than a permanent solution. No matter how distasteful it may seem to tax the less well off, the rich are already paying most of the taxes and they are the ones most likely to leave. Politically it is great to tax the rich instead of the poor, but as a principle of good government and good taxation policy it is a serious mistake, one that we will be paying for for decades.

halkar

Lets flip the coin and look at the other side.
Someone on 75k loose his job gets 200 on the dole.
Someone on 20k loose his job gets 200 on the dole.
Fecked up system.
No ones job is secure in this climate.

turgon

The idea of lower tax rates is to encourage productivity. This does not just affect income tax, but is supposed to have positive repercussions for the whole economy. In an entrepreneurial society, where due to low tax band people are encouraged to start there own businesses, these entrepreneurs give to the economy in less direct ways like jobs.

Of course, like so many socialist things, taxing the rich an huge amount appeals to peoples basic sentiment of those who can afford should. However people who subscribe to this cant understand the first paragraph above. They only see tax system within the basic system higher tax more money, which is many cases not true.

silverharp

look at it from the other side of the camp , if there is no limit on the tax take on the gov. then you create a hazard , it wouldnt be too difficult to come up with a list of functions within the gov. here or anywhere that are grossly inefficient or are gold plated in nature. but why bother reform if you can just stiff the public and heck go after the rich , you wont hear their squeals.

eamonnm79

BroomBurner wrote: »

It was proposed to me recently that those earning more money shouldn't necessarily be puished for working hard through having to pay higher tax rates.

The discussion came about following Michael Caine's slightly self-absorbed comments on the "3.5 million layabouts (he) has to get up at 6am to work hard to pay for", which, at the age of 76, he is entitled to say. I included the self-absorbed part as I'm sure some of those "layabouts" may have just been made redundant but would work if they could.

Anyway, got us thinking. What would be the effect of a lower tax for higher earners? Say, a standard 25% tax for anyone earning up t €50,000, then 23.5% for the next €100,000 and 20% for anything earning over it.

I know the first answers may include "lower tax take for the state", "the rich getting richer", etc., but I'm asking the question, unbiased and looking for unbiased, economic answers. Would it push lower earners to better themselves and their situations? How would this effect Ireland's economy?

The tax system of a country is a social contract. The short answer as to why it shouldnt happen is quite simple. Its just not civilised. I know the concept is going to be wasted on you freemarket people.

But the answer to your question is "its already happening" Dont you watch the news? Many of the richest people in Ireland pay a very low level or no tax.

The only workers who pay a fair amount of tax are PAYE workers every one else can avoid tax legally.

eamonnm79

halkar wrote: »

Lets flip the coin and look at the other side.
Someone on 75k loose his job gets 200 on the dole.
Someone on 20k loose his job gets 200 on the dole.
Fecked up system.
No ones job is secure in this climate.

Are you saying they should get more?
Why.
Both are as valuable to the economy, i.e. not at all
I genuinely think that there are a lot of people in this country with extreem class issues.

BTW I know the guy on 75k paid more in tax last year.

ixoy

eamonnm79 wrote: »

Are you saying they should get more?
Why.
Both are as valuable to the economy, i.e. not at all

Well the argument would go that they contributed more to the economy in terms of income tax, PRSI contributions etc. than those on 20K and thus deserve to get something back for said contributions.
More realistically they've a more expensive life style (mortgages, cars, etc) which they'd find more difficult to fund on the same amount as someone who was on 20K (although it is of course not the State's job to support said life style).

anonymous_joe

greendom wrote: »

A fundamental part of most tax systems is that they are equitable (fair). To my mind that means that those most able to pay should pay more.

There are many social studies that go to prove that the more equal a society is, the happier. This is not advocating communism, but where there is less of a gap between rich and poor, societies generally work better. Ireland really needs to narrow that gap not the other way round. Not to a level that would be a constraint on enterprise, but to a higher level than at present.

And why the blanket notion that if you are rich you must have worked hard. the other side of this coin is then if you are poor you don't. It's clearly nonsense. Just as there are many rich people who don't work hard, there are as many poor people that do,

In my mind the very definition of a fair tax rate would be one where all people paid an equal rate of tax. That would seem to be the definition of fair in my mind.

ixoy wrote: »

I saw there was outrage among the rich in Britain when the high tax band there was raised to I think 49% for those on 150k above (I'm assuming they've multiple tax bands? Doesn't seem too bad next to ours).

Their reasoning was that being highly taxed was a dis-incentive to work hard and achieve success. Them being successful, they argued, had great economic benefit because their businesses and interests generated jobs and other revenue streams for the economy. Tax them highly and they'd wonder why they'd bother.

Well there's an argument there in terms of wealth generation. Why bother working hard when you'll lose most of it?

97i9y3941

well,in ireland the tax system benefits the rich since they can afford to hide/move out from ireland from time to time,richard bruton rightly pointed out the gov could had closed the tax benefit for the big artists that live here,but then,the hands with money controls the puppets in gov

johnnyskeleton

eamonnm79 wrote: »

The only workers who pay a fair amount of tax are PAYE workers every one else can avoid tax legally.

That's nonsense. Most self assessment people pay their fair share of tax too. What you fail to realise is that if someone writes off a legitimate business expense e.g. rent, electricity, transport other than the home-> work route it is not avoiding tax.

For example, someone is a fruit seller who brings in €50k in sales, but has to pay €20k to keep his stall and pay for someone else to help out. He pays tax on the €30k, because that's what he gets into his hand. If he paid tax on the €50k he would be paying more than his fair share of tax.

Also, PAYE workers get more tax credits, so in effect they probably pay less than their fair share (although their employer makes up the difference in PAYE/PRSI contributions).

johnnyskeleton

Fred83 wrote: »

well,in ireland the tax system benefits the rich since they can afford to hide/move out from ireland from time to time,richard bruton rightly pointed out the gov could had closed the tax benefit for the big artists that live here,but then,the hands with money controls the puppets in gov

That the extremely wealthy (i.e. millionaires) can do this doesn't mean that tax should be increased for the comparatively wealthy (i.e. over €100k p.a.).

cm2000

eamonnm79 wrote: »

Are you saying they should get more?
Why.
Both are as valuable to the economy, i.e. not at all
I genuinely think that there are a lot of people in this country with extreem class issues.

BTW I know the guy on 75k paid more in tax last year.

Well if the first guy paid house insurance and his (presumably worse) house was flooded then he would get less than the second guy in the same situation. IMO if your income drops from 400 a week to 200 a week its not as bad as if it drops from 1000 a week to 200 a week because your expenditure outlays are based around those figures and you have paid more in "pay related" social insurance, and therefore your income should be better protected.

Macha

anonymous_joe wrote: »

In my mind the very definition of a fair tax rate would be one where all people paid an equal rate of tax. That would seem to be the definition of fair in my mind.

The function of tax is to pay for services that only the government can/should provide (army, water, electricity grid, etc) AND the redistribution of wealth.

Everyone paying the same rate of tax does not do anything to further the second function of taxation.

P. Breathnach

taconnol wrote: »

The function of tax is to pay for services that only the government can/should provide (army, water, electricity grid, etc) AND the redistribution of wealth.

Everyone paying the same rate of tax does not do anything to further the second function of taxation.

That, so far as I am concerned, is stating the obvious. I'm not suggesting that your post is redundant. Rather am I acknowledging the disappointing fact that in this group it is often necessary to state the obvious.

johnnyskeleton

cm2000 wrote: »

Well if the first guy paid house insurance and his (presumably worse) house was flooded then he would get less than the second guy in the same situation. IMO if your income drops from 400 a week to 200 a week its not as bad as if it drops from 1000 a week to 200 a week because your expenditure outlays are based around those figures and you have paid more in "pay related" social insurance, and therefore your income should be better protected.

Put another way, if they both paid into private income protection plans (e.g. Mortgage income protection etc) then the one with the higher income would pay more but get more if he loses his job. Whereas with the taxation system, the person who pays more gets the same as the person who pays less (or nothing if his income is sufficiently low). However, I think this argues more for parity in the amount each worker pays (and thus the higher income earner can pay more for private income protection if likes) than it does for a gradient scale of dole payments.

eamonnm79

johnnyskeleton wrote: »

That's nonsense. Most self assessment people pay their fair share of tax too. What you fail to realise is that if someone writes off a legitimate business expense e.g. rent, electricity, transport other than the home-> work route it is not avoiding tax.

For example, someone is a fruit seller who brings in €50k in sales, but has to pay €20k to keep his stall and pay for someone else to help out. He pays tax on the €30k, because that's what he gets into his hand. If he paid tax on the €50k he would be paying more than his fair share of tax.

Also, PAYE workers get more tax credits, so in effect they probably pay less than their fair share (although their employer makes up the difference in PAYE/PRSI contributions).

I dont fail to realise that, you fail to realise that human nature being what it is people get two receipts instead of one some times.:)
Anyway first lesson in tax.
Tax avoidance is legal only tax evasion is illegal.
I said non paye people avoid tax which is both true and legal.

greendom

anonymous_joe wrote: »

In my mind the very definition of a fair tax rate would be one where all people paid an equal rate of tax. That would seem to be the definition of fair in my mind.

?

Not in mine. I think that's a bit simplistic tbh. 20% off someone's income, earning €20k is a bigger burden than 20% off someone earning €100k. To be equitable the system should distribute the burden of tax fairly - that's why tax rates should increase as salaries increase. The reverse is lunacy imho

lmtduffy

johnnyskeleton wrote: »

but as a principle of good government and good taxation policy it is a serious mistake, one that we will be paying for for decades.

No, it the system the most prosperous, fair and peaceful societies on the earth use, ie the Scandinavian states,

lmtduffy

anonymous_joe wrote: »

In my mind the very definition of a fair tax rate would be one where all people paid an equal rate of tax. That would seem to be the definition of fair in my mind.


Well there's an argument there in terms of wealth generation. Why bother working hard when you'll lose most of it?

The system you want is equal not equitable,