Income tax, PRSI, USC

AlexisM

Godge wrote: »

Essentially, higher earners - those above 35k in Ireland - pay more tax so that lower earners - those under 30k - pay less tax and so that social welfare recipients can get better benefits. The problem created is that the incentive to work is lowered.

Very succinctly put and depressingly true...

It's very hard to right the situation though - any measures to do so would, by default, target/penalise/attack/crucify lower earners more than higher earners - and that's very difficult for any government to do. But it's not really fair to have austerity measures be a one-way street for higher earners - first to be targetted AND targetted the most - but politically difficult to reverse the process.

Another big issue which Germany seems to deal with fairly is a cap on social insurance contributions so there is at least some link between contributions and benefits. Here PRSI is 4% whether you earn 25K, 75K or 250K - but benefits are pretty much the same. You could have someone contributing 4% of a 1M pa salary for 10 years getting a lower pension than someone contributing 4% of a 25K salary for 20 years.

Idbatterim

Britain also has a large elderly population a significant military, both of which would cost serious money. We have neither of these.

AlexisM

A Scoundrel wrote: »

Last time I checked, it was mathematically impossible to be taxed at 52% (effective) as a PAYE worker in the Republic of Ireland....
...
But as far as the exchequer is concerned, no PAYE employee will ever pay an effective tax contribution as high as 52%. Ever.

Depends on how you (and your employer) view pay. I have a US employer - who is fine with paying employers PRSI on my salary. However, if he wants to give a $1,000 bonus to all staff, he wants to give me $1,000, not $1,000 + 10.75% employers PRSI - so my bonus gets grossed down to $903 - and THEN I pay marginal 52% - so out of the original $1,000 intended for me, I get $433 - a marginal tax rate of almost 57%. This could, in theory, gradually creep up (in an extremely good year...), to a full 52% of pay.

So out of a $1,000 bonus, my US colleagues keep $600-$700 (depends what state they are in) and I get to keep $433. I think 57% effective marginal rate is just too high.

And while I'm here and ranting, a connected gripe is that all this extra employee and employer's PRSI brings absolutely no extra benefit to me or my employer. Benefits are capped - contributions should be too.

Idbatterim

And while I'm here and ranting, a connected gripe is that all this extra employee and employer's PRSI brings absolutely no extra benefit to me or my employer. Benefits are capped - contributions should be too.

But doesnt the contributory pensions, pay a whopping E20 more per week than the non contributory pension here?.... Suddenly it makes it all seem so worthwhile... :rolleyes:

srsly78

Also note the non-contributory pension is means tested, so can't be topped up.

Cool Mo D

Cookie_Monster wrote: »

no, not in total but on any marginal income. It's a huge disincentive to do any extra work

I would like to point out that there is very, very little evidence for the idea that raising marginal tax rates makes people change their work habits all that much. You can make an argument that it's unfair for high earners to be taking the brunt of the tax increases, but the evidence says that even when people do work less when they are taxed at higher marginal rates, which doesn't always happen, the difference it makes is tiny.

Here is a relevant study: http://www.nber.org/digest/jul12/w17860.html

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

AlexisM

Cool Mo D wrote: »

Here is a relevant study:

It's from the US spanning the inter-war years which would include the depression-era - ie North America 1920s and 1930s - how far away from modern times and working conditions would you have to go to make a study not relevant?

Cool Mo D wrote: »

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

I couldn't access any more than the 1st page (rest is behind a paywall) - this is certainly more up to date at a still-not-very-recent 1957...

So an 80 year old study and a 60 year old study? No possibility that work practices, social issues etc. might have changed behaviours since then? Not to mention that I would imagine in depression-era America, even a 90% tax rate would mean getting 10% of something - which might at least mean food on the table for your family. Are there really no studies you can find from more recent times?

For proof of the opposite view, you just have to look to the UK where the increase in the top rate from 45 to 50 didn't bring in anywhere near as much as expected because people just wouldn't put up with those rates - the rate was changed back to 45 last April (2013).

zielarz

We've got more recent data from UK. Left-wingers moaned that it will reduce tax revenues... the opposite happened.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10074285/Treasury-raises-extra-1.3bn-from-income-tax-in-first-month-of-45p-rate.html

srsly78

zielarz wrote: »

We've got more recent data from UK. Left-wingers moaned that it will reduce tax revenues... the opposite happened.

http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/10074285/Treasury-raises-extra-1.3bn-from-income-tax-in-first-month-of-45p-rate.html

Less is more: http://en.wikipedia.org/wiki/Laffer_curve

Frank Lee Midere

Cool Mo D wrote: »

I would like to point out that there is very, very little evidence for the idea that raising marginal tax rates makes people change their work habits all that much. You can make an argument that it's unfair for high earners to be taking the brunt of the tax increases, but the evidence says that even when people do work less when they are taxed at higher marginal rates, which doesn't always happen, the difference it makes is tiny.

Here is a relevant study: http://www.nber.org/digest/jul12/w17860.html

Here is another study, focused on workers who had the flexibility to cut their hours in response to higher tax rates. Even though they had the choice, they did not take it. http://www.jstor.org/stable/info/1811736

That's because workers in the PAYE sector have to work and have to pay taxes. Only a fool with a bad accountant would pay 52% of his income if he didn't have to.

And wages are not the only income. Leftists - well modern leftists - persist in this nonsense. If my PAYE deductions got too high I would contract. Higher executives would pay themselves in stocks or options and take the lighter tax on capital gains, the self employed would take more cash options even if that is more risky these days.

You can't actually go after the real rich with these taxes because the real rich don't earn wages.

Cool Mo D

AlexisM wrote: »

It's from the US spanning the inter-war years which would include the depression-era - ie North America 1920s and 1930s - how far away from modern times and working conditions would you have to go to make a study not relevant?
I couldn't access any more than the 1st page (rest is behind a paywall) - this is certainly more up to date at a still-not-very-recent 1957...

So an 80 year old study and a 60 year old study? No possibility that work practices, social issues etc. might have changed behaviours since then? Not to mention that I would imagine in depression-era America, even a 90% tax rate would mean getting 10% of something - which might at least mean food on the table for your family. Are there really no studies you can find from more recent times?

For proof of the opposite view, you just have to look to the UK where the increase in the top rate from 45 to 50 didn't bring in anywhere near as much as expected because people just wouldn't put up with those rates - the rate was changed back to 45 last April (2013).

The reason that those studies are particularly valid is because they were done at times when marginal tax rates were fluctuating rapidly before and after the second world war. Therefore, if people did change their work habits, this would have been the ideal time to spot it. The second study was specifically based on workers who had the freedom to change their working hours in response to tax conditions - can you explain exactly why they are not still relevant?

In the 1920's and 1930's the labour market was, if anything, more casual and flexible than today. Hours were a lot less fixed than today, so, if anything you should see a bigger effect drop in working hours than you would today.

You have also provided absolutely no evidence that the rise in the marginal income tax rate in the UK from 45% to 50% affected the amount of hours worked. I can find a lot of people CLAIMING that it reduced the number of hours worked, but 0 actual data. And as for the Laffer curve - there is recent work showing that you can push tax rates up to about 65% before you end up on the wrong side of the curve: http://www.sciencedirect.com/science/article/pii/0304393295012249

Frank Lee Midere

Cool Mo D wrote: »

The reason that those studies are particularly valid is because they were done at times when marginal tax rates were fluctuating rapidly before and after the second world war. Therefore, if people did change their work habits, this would have been the ideal time to spot it. The second study was specifically based on workers who had the freedom to change their working hours in response to tax conditions - can you explain exactly why they are not still relevant?

In the 1920's and 1930's the labour market was, if anything, more casual and flexible than today. Hours were a lot less fixed than today, so, if anything you should see a bigger effect drop in working hours than you would today.

You have also provided absolutely no evidence that the rise in the marginal income tax rate in the UK from 45% to 50% affected the amount of hours worked. I can find a lot of people CLAIMING that it reduced the number of hours worked, but 0 actual data. And as for the Laffer curve - there is recent work showing that you can push tax rates up to about 65% before you end up on the wrong side of the curve: http://www.sciencedirect.com/science/article/pii/0304393295012249

But the recent UK reality showed the opposite - that the 50% tax band didn't bring in as much as it should have were it paid universally. So people stopped working or stopped getting paid as wages. You deliberately miss this.

But this is largely off topic. Seizing 52% of the PAYE workers average salary to pay for perks and pensions he won't get is immoral.

Cool Mo D

Frank Lee Midere wrote: »

But the recent UK reality showed the opposite - that the 50% tax band didn't bring in as much as it should have were it paid universally. So people stopped working or stopped getting paid as wages. You deliberately miss this.

No, it didn't show this. What happened was that some commentators said that the 50% rate did not bring in as much revenue as it should. This was entirely based on their say-so and not actual economic data. Then, when the rate was reduced to 45%, the amount of income tax collected increased. However, this does not mean that the 50% rate was holding back the economy - in fact the economy was starting to recover, so the government had the fiscal space to cut tax, to reward their middle class political base.

My basic point is that economic journalists and commentators like to claim that cutting taxes is good for productivity. This conveniently helps them to sell papers to people who stand to benefit from these tax cuts. Now, it may or may not be the case that cutting taxes does help productivity, but when academic economists try to study the issue, the effects are pretty small.

Part of the reason that economics has such a poor reputation is people confusing media cheerleaders, for the property market, for tax cuts, for whatever flavour of the month, with actual economists trying to make sense of how people really respond to complex economic conditions. I would like to see people argue with facts, rather than their gut feel of what reality should be like.

sock puppet

The laffer curve has never struck me as particularly applicable to policy making. All it says is that there is at least one rate at which tax take is maximised. What does that actually mean to legislators though? Even if you're at a point where you've increased taxes and revenue has fallen it could be do to other factors and vice versa. It could also be that you've found a local maxima on the laffer curve but not the global maximum. What if the laffer curve shifts? What happens, if as Idbatterim suggests, if we keep average tax rates the same but reduce the marginal rate? Im sure there's been research into all those areas but it rather ruins the simplicity of the laffer curve.

zielarz

Cool Mo D, you're making logical error. I am better off when I pay less tax, not when I pay more. Everybody else is better off when they pay less tax. I don't need proofs for that. I know it because it's just common sense.

barneystinson

zielarz wrote: »

Cool Mo D, you're making logical error. I am better off when I pay less tax, not when I pay more. Everybody else is better off when they pay less tax. I don't need proofs for that. I know it because it's just common sense.

I think you're the one making the logical error there! Cave men didnt pay any taxes, were they better off than us?

The logical conclusion of that would result in no tax being paid = no tax being collected = no State/public sector = no infrastructure (roads, hospitals, police, schools, courts).

Frank Lee Midere

Cool Mo D wrote: »

No, it didn't show this. What happened was that some commentators said that the 50% rate did not bring in as much revenue as it should. This was entirely based on their say-so and not actual economic data. Then, when the rate was reduced to 45%, the amount of income tax collected increased. However, this does not mean that the 50% rate was holding back the economy - in fact the economy was starting to recover, so the government had the fiscal space to cut tax, to reward their middle class political base.

My basic point is that economic journalists and commentators like to claim that cutting taxes is good for productivity. This conveniently helps them to sell papers to people who stand to benefit from these tax cuts. Now, it may or may not be the case that cutting taxes does help productivity, but when academic economists try to study the issue, the effects are pretty small.

Part of the reason that economics has such a poor reputation is people confusing media cheerleaders, for the property market, for tax cuts, for whatever flavour of the month, with actual economists trying to make sense of how people really respond to complex economic conditions. I would like to see people argue with facts, rather than their gut feel of what reality should be like.

But I did. Firstly I agree with your problems with newspaper economists but no economist actually follows real science.

Back to the 45% - 50% tax rise. It should be perfectly simple to work out what that should have brought in if nobody could avoid it

i.e there are 100,000 PAYE workers earning £1B cumulatively above 150k. We decide to now tax that £1B at 5% more so we should see extra revenues of 50M, all things being equal. If we don't people are working less or hiding their income somehow, or moving out of the PAYE sector in part or full. Which might be a matter of how they take bonuses.

In any case a 50% tax on the top 1% is hardly equivalent of 52% on the top 40%.

Some taxes might generate economic activity depending on how the tax is spent, due to multiplier effects, like taxes on wealth or land. Taxes on workers in ordinary roles is probably counter productive.

Frank Lee Midere

sock puppet wrote: »

The laffer curve has never struck me as particularly applicable to policy making. All it says is that there is at least one rate at which tax take is maximised. What does that actually mean to legislators though? Even if you're at a point where you've increased taxes and revenue has fallen it could be do to other factors and vice versa. It could also be that you've found a local maxima on the laffer curve but not the global maximum. What if the laffer curve shifts? What happens, if as Idbatterim suggests, if we keep average tax rates the same but reduce the marginal rate? Im sure there's been research into all those areas but it rather ruins the simplicity of the laffer curve.

The laffer curve is always about marginal rates.

sock puppet

Frank Lee Midere wrote: »

But I did. Firstly I agree with your problems with newspaper economists but no economist actually follows real science.

Back to the 45% - 50% tax rise. It should be perfectly simple to work out what that should have brought in if nobody could avoid it

i.e there are 100,000 PAYE workers earning £1B cumulatively above 150k. We decide to now tax that £1B at 5% more so we should see extra revenues of 50M, all things being equal. If we don't people are working less or hiding their income somehow, or moving out of the PAYE sector in part or full. Which might be a matter of how they take bonuses.

In any case a 50% tax on the top 1% is hardly equivalent of 52% on the top 40%.

Some taxes might generate economic activity depending on how the tax is spent, due to multiplier effects, like taxes on wealth or land. Taxes on workers in ordinary roles is probably counter productive.

As you say replication or controled experiments are impossible in economics, so you can never be certain of the effect of any specific policy. There might be evidence that it produces a certain outcome sure, but you can never "prove" or "show" anything. And because tax revenues are dependant on many variables which constantly change, and which also may interact or be correlated, it can be difficult to determine what is causing them to change.

Frank Lee Midere wrote: »

The laffer curve is always about marginal rates.

Open to correction but that's the first I've ever heard that.

zielarz

barneystinson wrote: »

I think you're the one making the logical error there! Cave men didnt pay any taxes, were they better off than us?

The logical conclusion of that would result in no tax being paid = no tax being collected = no State/public sector = no infrastructure (roads, hospitals, police, schools, courts).

This isn't a good argument. Are you saying that cave men didn't have proper infrastucture because he didn't pay any taxes?

This thread is about high marginal tax rates, not about abolishing taxation. I'm in favour of lowering labour taxes, they're the highest. For some reason society doesn't value hard work.

Count Dooku

barneystinson wrote: »

I think you're the one making the logical error there! Cave men didnt pay any taxes, were they better off than us?

The logical conclusion of that would result in no tax being paid = no tax being collected = no State/public sector = no infrastructure (roads, hospitals, police, schools, courts).

Can work opposite - more taxes paid, less money people have to spend, less money to spend - less jobs in retail and industry, less jobs - more money should go for dole plus less taxes collected and tax rates have to increase again
This is what we see now - increased collection of income taxes resulted reduced VAT take, shops closing and only reason why unemployment is not going up because people are emigrating, plus government can hide real unemployment in JobsBridge

barneystinson

Count Dooku wrote: »

Can work opposite - more taxes paid, less money people have to spend, less money to spend - less jobs in retail and industry, less jobs - more money should go for dole plus less taxes collected and tax rates have to increase again
This is what we see now - increased collection of income taxes resulted reduced VAT take, shops closing and only reason why unemployment is not going up because people are emigrating, plus government can hide real unemployment in JobsBridge

I understand that, but my point still stands, you can only reduce taxes so far and still have a functioning State. Civilisation is expensive.