Here‘s an article I wrote for today’s Irish Times on tax. The article was slightly edited in a way that might obscure one of the points I wanted to make. I understand that the Commission on Taxation were not really given a mandate to think about what is the “correct” level of taxation but the fact is that we are going to have make serious Boston-versus Berlin-style decisions over the next few years and this issue will come up time and again.
I don’t favour raising income taxes in the upcoming budget and I do favour full implementation of the McCarthy report. But after that point, a decision to keep income taxes at current levels will have major implications for spending. I heard the Minister for Finance on the radio yesterday say that there is was “no further room” for income tax increases. It is possible he is referring only to the upcoming budget but the idea that income tax has hit some very high level that can’t be increased doesn’t strike me as correct in light of the facts.
15 replies on “Irish Times Article on Tax”
Karl
Nice article (and good to show the begrudgers that you are more than no-to-nama-man).
I wonder if there is an appetite for a flat tax system here?
Karl, I’m not stalking you, honestly!
I think some may have the perception that the CoT was the other half of the Snip report – i.e. how can we use taxes to dig us out of this hole?
As the mantra is “tax neutrality” this clearly isn’t the case. It almost seems an academic luxury in our current dire position.
Karl, Lenihan has been saying that there should be no tax increases since before the last 2 (1.5?) budgets. Having said this he then introduced the greatest tax increases we’ve ever seen. So whatever he’s saying now it isn’t a ‘Read My Lips’ moment. Also the government’s whole approach is disingenuous. Are there academic economists who actually believe that a tax on homes is NOT an income tax? I mean what is one supposed to do? Take a brick out of the wall and FedEx it to Revenue? What names the government gives to the demand on your earned income are mostly irrelevant. All this debate about ‘rebalancing’ the tax system are just more pretence that things are normal and that we have the luxury of having this discussion.
Any tax increases implemented on ANYTHING whilst the government doesn’t get its spending under control will be a transfer from productive to unproductive areas.
The government is planning to take more of your income in taxes via: charges on its monopoly, overregulated services; your home…etc….. Put it on a spreadsheet. You will take less of your income home again at the end of next year.
Prediction: If (when?) the world economy substantially improves before Ireland’s then expect a flood of experienced talent and ambitious youth out of the country.
Karl, you say ‘the idea that income tax has hit some very high level that can’t be increased doesn’t strike me as correct in light of the facts.’ I take it you mean that the government might increase it and not that any such increases are actually going to help??!! Already our real (income tax + levies) income taxes are very high. Add in the huge indirect taxes….the fact that there are people with effective 30-year loans on 100k stamp duty charges…..plus cost of ESB…with its ‘dividend’ (tax) and overpaid staff…..it goes on and on… all leaving out the fact that we don’t get much for all this money and everything you want to do (take a child to the doctor) costs really quite a lot of money…despite ‘health levies’…etc..etc… The entire tax / pubilc expenditrue system in Ireland is preditory on young productive workers in the private sector.
“the fact is that we are going to have make serious Boston-versus Berlin-style decisions over the next few years and this issue will come up time and again.”
Oh God. Can we please not pick Berlin?
Brian L., Karl,
I suspect that flat tax is a bridge too far. And will make you sound a bit like a US republican party fringe. The tax system is Ireland is weird in that there is a steep rise in the effective tax rate and not just marginal tax somewhere near or above the median wage. There is also the perception that PAYE workers get hit as easy targets whereas a lot of self-employed evade tax quite easily. Moreover, a fair bit of this evasion is legally sanctioned through obvious loopholes. There is an asymmetry here in that some classes of people with substantial income are able to keep their effective tax rates very very small.
Tax breaks for any property related investment should be discontinued asap and I am happy to see the CoT recommend that to a degree. All pension contributions should be exempted at a flat rate and not the marginal tax rate. And hard as it is for them, the government should turn a deaf ear to pension fund managers and advisers. The PRSI ceiling should be lifted as it is a regressive feature.
And regardless of the mandate, talking of tax-neutral measures is just plain silly and damages the credibility of the CoT.
Dave, as someone once said Ireland has cider levels of service for champagne prices. You are gonna get Berlin taxes with Boston services.
It isn’t one or the other. I think we should be aiming for sparking (not necessarily brand-name champagne) services for not much more than cider prices. What we have to think about is how to make Ireland into a country that provides a great quality of life with a balance between taxation and the cost of living to provide a high level of productivity.
@ Antoin
i’d settle for M&S Cava level of services…
Id settle for Dutch gold levels of service.
“Further moves to raise marginal tax rates are likely to see a return to the wholesale tax avoidance that we saw during the 1980s and, thus, may be self-defeating in terms of raising revenue.”
Surely this is not a problem since the commision are going to close off all the avoidance loopholes? 🙂
I note the confiscatory 80% tax on profits from certain land sales, if some triggering factors apply thereto.
Does this mean that the enormous losses, made and about to be made by the existing cronies of BIG lovable pro Lisbon, government, will be available to offset future gains? Their competitors will be taxed at 80%, but these old pals will not, given these losses, until they run out in about 2220 AD that is …. !
Hmmm, nice one! Why not rule out losses incurred from land purchased before 9/9/9? Fat chance!
Karl wrote:
“an occasional detailed examination of the tax system by a group of independent experts is helpful”
Do you really think that this group was made up of independent experts?
It was anything but this. It was made up of people who have made a living out of keeping people out of the tax net and devising accounting techniques to avoid the payment of taxation. Each individual comes from a profession that is premised upon the assumption that taxation is something to be avoided at all costs.
Hence, as a theorist using rational choice as a theoretical frame to interpret individual behaviour you should not be surprised that “The terms of reference for the commission included ‘‘keeping the overall tax burden low’’.
Even if the terms of reference were to restructure the tax system you can be damn sure that every individual (with the exception of SIPTU’s rep) would argue for a low tax regime. A low tax regime that makes it impossible to create, deliver and sustain an efficient public service.
This report is not revenue neutral and it is not made up of independent experts. Starting from this assumption/premise would provide a more empirically accurate analysis.
However, I agree with the overall conclusion that taxing income is the best option. This coupled with taxing wealth is the best means of generating a progressive taxation system.
Paul MacDonnell Says: “Are there academic economists who actually believe that a tax on homes is NOT an income tax?”
The taxes fall on different individuals. Income taxes force workers to work extra for the same amount of pay. Property taxes force property owners of properties that do not produce income to sell or pay extra to live a certain life style. The two taxes have different charateristics and affect different people.
They are both paid out of cash flow, although in the extreme the state will take property as payment, but usually only after taxes have not been paid in cash.
http://www.irishtimes.com/newspaper/breaking/2009/0914/breaking81.html?via=mr
This is just great! Lets cut public expenditure! Leave taxes alone! We will all be so much better! Paradise.
@ Pat – well No I wouldn’t say that. I would say Cut public spending AND CUT taxes. The tear-jerking health story you lazily post is, if you care to actually read it, yet another example of public sector incompetence set within a matrix of denial. ‘…Mrs Flanagan’s medical records he believed she was given eight units more blood than she required and this “fluid overload” could put pressure on her heart and could cause heart failure.’ Notice how the whole thing is discussed in passive voice to ensure that the possibility that it’s anyone’s fault simply doesn’t arise.