In my post on income tax of a few days ago, the sample structure that I presented went part of the way back to the rates and bands in effect in 1996, a good year.
One feature of the mid-1990s income tax structure was the much lower exemption levels effectively achieved nowadays through tax credits. Should this trend be reversed?
Two comments on my earlier post point to problems in lowering the effective threshold. Colm McCarthy worries about incentive effects given the interaction with social welfare. Aedin Doris finds it difficult to justify taxing a low income single mother with two kids.
I have sympathy with both views, and this is not a make or break issue for revenue (though there is some revenue potential even at the low end).
I also note counterpoints. The more revenue we seek from the system as a whole, the more a high exemption threshold/general tax credit pushes other workers into higher marginal tax rates; bad for incentives. And, depending on their family/household circumstances, not all low income part-timers have low consumption.
Then there is the political/ideological view that as wide a range of citizens should feel involved in the national housekeeping by paying some income tax (though all pay expenditure taxes anyway).
The impact of a lower exemption threshold on low income tax payers could be considerably eased, as has been suggested, by re-introduction of a third low income tax rate.
My guess is that, for a Minister of Finance, lowering the effective threshold (by lowering personal tax credits) offers too big a hostage to fortune to be worth the revenue it would raise.
What do others think?
(Update: the first version of this posting used misleading language about thresholds, I have modified it without changing the intended sense).