i dont have a problem with some sort of method or process to help out families with children, particularly your idea of child tax credits, and i should state that im not suggesting taxing just these groups more. My broader point is that unfortunately we are going to have to tax all those who currently pay little or no tax (in relative terms) by a substantial amount more if we wish to create a wider and more sustainable tax base. The top end simply can’t (mathematically - check out Karl W’s post)) take the majority of the burden, and so lower-to-middle middle class families are going to have to be majorly involved in the adjustment, particularly when they currently pay a very low level of actual net tax after child benefit is included.

I suppose i’m focusing on the family angle more directly because it is obviously the most politically unpalletable, and most public representatives (union or government) won’t touch the idea with a 200ft barge pole. That doesn’t make it any less true or important however.

I think you are right re the figures in the DoF link. And I agree that there is no good reason for mere marriage (or co-habitation or any other living arrangement) on one income to trigger different thresholds on tax bands. I’ve not seen this type of tax arrangement in any other of the half-dozen tax jurisdictions in which I have paid income-tax over the past 25 or so years. Clearly this tax arrangement also provides an incentive to generate a second, smaller, income in the black economy. However, my arguments re significant child-support benefits for lower-income families remain, and I think you may agree with me on that.

“The single-income family receives a tax advantage over the single-income person earning the same salary of 7.8 percentage points, reflecting the child-benefits transfer.”

The figures provided in the DoF link, as far as im aware, do not include child benefit allowances. They only include standard tax credits for single people and married people, and as such essentially represent just the differences caused by these and the accompanying tax bands. Regardless of having children or not, simply being married allows you to pay a good deal less tax than a single person on the same salary by virtue of the married persons tax credit, and this affect is obviously magnified at the lower income levels. If you include the children and the child benefits transfer, the gap between single people and married couples balloons for lower income tax units.

I wish I were self employed, and it’s not clear to me where you think I say that. I’m a wage slave, as is my wife, like most of the rest of the working population.

@Eoin

Taking your argument that your concern is not about families on well-above average incomes gaining a few percentage points of income-tax advantage, but about families on average incomes escaping the income-tax net (they don’t, of course, escape the “tax net”), the following comes from the tables you referenced earlier:

2009 figures:

Tax paid by single earner on Euro 30,000 - 16.9%
Tax paid by married couple, 2 children, on single income Euro 30,000 - 9.1%
Tax paid by married couple, 2 children, on dual incomes, each of Euro 30,000 - 15.5%

The single-income family receives a tax advantage over the single-income person earning the same salary of 7.8 percentage points, reflecting the child-benefits transfer. However, the dual income family, where each earner in on the same salary as the single earner, gains a small 1.4% tax advantage.

Only if the single income family with two children earns Euro 15,000, do they pay no tax and they are outside the income-tax net. But the single-earner (no children) also pays no income-tax, and is outside the icome-tax net. Where’s the problem? The table you references assumes a 65/35 skew, and on an average wage each of Euro 15,000 (actual wages of Euro 19,500 and Euro 10500), this family pays 3% income-tax. No ‘family advantage’ there.

So, what is your point? Are you advocating that the incomes of two people who work, merely because they choose to marry should have their incomes combined and taxed as if the combined income were one income?

I don’t think you could be advocating this social-awareness-circa-1950’s scenario, so the small income-tax advantage of the single-income family, derived from fixed tax-free child-benefits, must be the issue. This advantage probably persists for the dual-income family, but if there is an income difference for the two earners in a two-income married couple, it erodes.

It’s clear to me that the child-welfare aspect of the child benefit payment hugely outweighs the tax loss, given the reality of the high fixed costs of raising children in Ireland that impact very severely on those on industrial-average wages or lower.

Taxing the benefit, and eliminating it for higher income earners, is clearly the way to kill the anomaly in the current tax regime.

As for closing the structural deficit … removing all tax anomalies is obviously a requirement, and even changing the conditions under which tax is payable. In the US, for example, a general taxation principle is that a US citizen who lives outside the US still pays income-tax to the US on locally earned income (with deductions for local income-tax paid, etc), or gives up US citizenship. Makes being a “tax exile” less attractive (US citizens living in low-income-tax countries complain bitterly about the historical irony of paying to the US “tax without representation”).

@Eoin
You should bear in mind that a household with two average incomes compared to a single income household:
From the 2006 figures:
32k income - 2,524 tax
Times two add in two children and you have an effective transfer
66k income - 11,407 tax
More than four times the tax burden of the lower earning double income household.

you’re right that this is getting tedious, though i’d argue that that’s not my fault. In fact, im not even that sure what exactly we are arguing about.

Way up above you contended that “However, our 34% hardly means we pay, as you put it, “little or no income tax”, especially compared to you.”

Given that we can have a reasonable idea of how much you earn as a family unit, you are not a member of the lower-to-middle middle class soceio-economic group i have been noting pay very little in income tax. Therefore i never suggested that you pay little or no income tax. You are quite clearly well above the average in terms of household income. Given the cost of raising kids in this country, it may not always feel this way, but as i noted earlier, i think we need to seperate costs from taxes in terms of public policy. In many ways the government tried to use tax policy as a way of placating families feeling the pinch from the costs of this country, and that could be argued for one of the reasons we are where we are in terms of both the property market bubble as well as the fiscal gap, public sector pay and the extremely narrow tax base.

You originally came into this conversation believing that Declan had a point, and you believed i, amongst others, had been unfair to his argument.

Declan suggested that families be the “last group being taxed” and that we were essentially “family bashers”. I am not a “family basher”, but we need to at least be honest about how much many families currently pay in taxes, how families currently receive many tax breaks and social transfers as is, and that no tax base is going to be in any way sustainable unless we include within the tax net many of the families who are currently outside of it. Thats the only point im trying to get across.

This is tedious, but nevertheless raises an interesting point re income tax rates and their reportage and discussion in Ireland. Married persons are treated as a unit of income. This can lead to silly conclusions. From your comments above, and the tables you provide, my wife and I together do earn more than you. But, each of us earns almost the same as you (and almost the same as each other), and on our incomes, we each pay 34% tax (and, therefore, of course, 34% tax on our combined income). You pay 37% tax without children, and you would pay 3% or 4% less if you were in receipt of child benefits for two children of the ages of our children. You may think that child benefits are unreasonable (since having children is a choice, etc.), or reasonable (since the pope has a view, and since children are needed to support the economy in the future, etc.).

the whole point of my posts has been that lower-to-middle middle class couple pay little or no tax. If you pay 34% of your income in tax, than you are quite clearly, per the DoF link i provided, earning an income that is not in this bracket. To clarify, per this same link, as a single person, when you include child benefit, i would earn significantly less than you (i’d say 30%, maybe more) and yet still pay a slightly higher actual income tax rate.

Also, per “the realpolitik argument that you should not burden the extremely wealthy or the childless with high taxes”, i have repeatedly stated that these demographics should pay more in income tax than ‘families’, but in our current discussion about how to close the structural deficit, we need to acknowledge that we already tax these groups far more than ‘families’, and dont tax around half the working population at all. As i said, if we have seperate groups of people paying 0%, 10% and 35% effective income tax rates, does it really seem sensible or fair to add to the 35% group without doing something with the other two first?

The graph I keep hoping you’ll plot would compare the Irish tax take at each income decile with the average across the EU and/or the EU-15.

The amazing thing about Ireland’s boom was consensus. You could ask a taxi driver or the Minister for Finance, and they would give you very similar accounts of Ireland’s overall economic strategy.

The Government needs to drill the above two facts home, so that we can a counterpart consensus, similar to the 1987 PNR, for how to recover.

(References, so to speak: The first point about who pays what in taxes has been linked to above. For those interested in the latter point, see http://www.ronanlyons.com/2009/10/21/tax-increases-or-spending-cuts-is-irelands-government-too-big/)

(c) Cost of things and tax regimes are not unconnected; but no, most of my argument does not relate to the cost of things in the RoI. You mention earlier that you paid 37% of your income, presumably in 2008, in tax. We paid 34% - lower because of our lower salary than yours, perhaps, and also lower because we received Euro 4482 in untaxed child-related benefits. However, our 34% hardly means we pay, as you put it, “little or no income tax”, especially compared to you.

Nowhere do I suggest that I think that the relatively high cost of the things we buy in Ireland, compared to their cost in many other countries in the eurozone and elsewhere, means that you should pay more tax.

(b) I do not disagree that it is easiest for young childless persons to leave Ireland. My point was that older persons with children may find it not too difficult either, and that there are very significant economic and social-support reasons for doing so, perhaps particularly for those who have professional occupations. The implication of this point is that if you are going to use the realpolitik argument that you should not burden the extremely wealthy or the childless with high taxes, since they will simply leave to live in a lower-tax regime, then it may be wishful thinking to think that the couple-with-children (and, indeed, the single working person with children) may not find other tax/welfare/social-infrastructure environments in Europe also relatively easy to move to.

(a) Nowhere do I suggest that the entire crisis in Ireland was caused by bondholders being made whole. My point, which may not have been clear, is that this act is symptomatic of a long history of such ill-conceived acts. The huge structural deficit, of which we are all now well aware, clearly (to a relative outsider at least) has its origins in a long history of behaviour, priorities, and ways of thinking. Fintan O’Toole’s recent book “Ship of Fools” does a superb job, in my view, of describing some of that history and some of its consequences.

(a) the notion about the bondholders being made whole causing this entire crisis are weak and myopic. Bondholders didnt cause our public sector spending to hit 47bn last year, and nor did they cause our tax revenue to hit 36bn this year. We made that deficit gap all by ourselves. We’ve been running a structural deficit for the last 6 or 7 years at least. It would have to be closed by us regardless, though ill admit the process may be easier were it not for the banking crisis.

(b) families can of course leave this country, but my point was that its far easier for single people to leave than families. As such, they are far more likely to, and they’re the ones currently paying a higher proportion of their income in tax. Ceterus paribus, if they leave, your tax bill goes up. Thats all.

(c) most of your arguments relate to the cost of things in this country, which is an entirely seperate, though no less important, issue to the taxation policy of the state. Things you buy being quite expensive doesn’t seem to be a good reason to tax me more.

Eoin:
“From a very cold-hearted view as well, middle class families are the least likely to leave the country given how tied in to the country they are (ie mortgage, kids in school etc). Young single people or the very wealthy are both much more mobile and could easily leave the country for other countries with lower tax. As such, any significant tax increases on them is more than likely going to see material amounts of these people leave the state for pastures new.”

Stuart Blythman:
“By the way when I was at your stage there was no early childcare supplement, children’s allowance was a lot lower, taxes were higher, interest rates hit 17% at one stage. And if John the Optimist is reading this he’ll be able to prove our average saleries [sic] were much lower. We have to adjust our lifestyle.”

Declan has a serious point. I am also a “returnee” (though I was away for much longer than Declan) of two years standing. “Middle class”, two children, and we have seen our savings eroded over the past two years, despite two PAYE incomes for most of that time. Euro 1,000 per month creche fees (at a university creche), Euro 600 per month for 2pm-5pm after-school care, astonishing rents for, by international standards, very average housing, etc., etc. Like Declan, it was clear to us when we arrived that there was in Ireland the mother of all housing bubbles, and we did not even think about buying (Kiwi friends who bought an astonishingly overpriced shoebox two years ago who now cannot return to NZ without writing off their Euro 200k life’s savings, and having perhaps an additional Euro 100k of debt following them).

We leave at the end of the year, and are very pleased that our EU passports allow us to live in an economically more mature European country. A familiarization visit revealed the following - state-funded schooling for children of a quality similar to private schooling in Ireland (including, 20 students per class max class size, well-maintained and extraordinarily well-funded infrastructure, regular school hours); housing cheaper than Ireland today - at the bottom now? - and of better quality (care of govt. anti-speculation measures and housing development policies that clearly have not been formulated for the past fifty years, by intent or mere neglect, with a primary focus on the interests of “property developers”), efficient, widely-avaliable, pleasant-to-use (even in rush hour) public transport (in which trams dominate), and so on. Our take-home pay will also be better, since tax deductions for children and rent/mortgage are significant, and while marginal tax rates are higher and more progressive than in Ireland, we will not fall in the highest marginal bracket on incomes that are roughly the same we earn in Ireland.

My point is that there is much that is very attractive to any middle class family with children in this, and perhaps a dozen more, countries in the EU, and despite the recession, there is still a job market in much of the EU. So, thinking that middle class families who have children are locked in to pay whatever increase in tax and decrease in public service that is required to “make the bond-holders whole” and keep the banks and developers in pocket and out of goal, may be premature (and yes, I agree with the implied argument that those on the average industrial wage and less certainly can’t afford to pay all that now needs to be paid to ensure the uninterrupted and continued transfer of wealth to the land-owners, speculators, bankers, bondholders, tax refugees, and the rest of the clients).

“I think you’re confusing marginal and average tax rates here. Marginal rates have risen significantly, but average rates will have risen a lot less.”

Have they though? At the top-end, which is what we were discussing.

As I said the “levies are immune to sheltering”. By that I meant, the levies come off the top with no tax relief applied. For ultra-high earners, surely the biggest downward pressure on the average tax rate is the availability of such reliefs? (as opposed to tax credits with have a much bigger impact on low earners)

Reliefs seem to be the factor that caused in 2006 the average tax rate of someone on more than 250k to be slightly *lower* than someone on 200k-250k. So I’d suspect the inescapability of the levies will cause a much bigger jump in average tax rates at the top end, than would be the case if the PAYE rate was increased by the same number of percentage points.

As with Eoin my beef is with those who don’t pay tax at all effectively and there are a lot of them. They should be paying some tax. I also want to see the public sector pay bill down significantly. I’m not averse to a property tax replacing stamp duty even though that will hit me but will give steadier income to the government.

So, not selfish considerations but a desire to see the country I live in get back on its feet and provide a future for my children who are closer to emigration than yours. Where I am selfish is I want them to stay here.

By the way when I was at your stage there was no early childcare supplement, children’s allowance was a lot lower, taxes were higher, interest rates hit 17% at one stage. And if John the Optimist is reading this he’ll be able to prove our average saleries were much lower. We have to adjust our lifestyle.

not sure if your post was directed at me, amongst others, but let me clarify where i stand.

I am NOT in favour of tax hikes. I want very very big cuts in public sector wage and benefit expenditure. If we believe that some sort of stimulus is required, then these public sector wage savings should be re-focused on private sector job re-training, productive but vulerable job protection, or simply long term infrastructure investment.

However, if we as a society decide that we need tax hikes, then from a long term sustainable tax model perspective, we simply cannot keep a situation going where 75% of the whole workforce, and the vast majority of middle class families, pay little or no income tax (ie sub 10%) after child benefit is taken into account. This isn’t ‘family bashing’, its simply recognising the reality of a situation where at the moment about half of the workforce pay more or less zero. This obviously does not include you if you say you pay 22% or so in income tax, but working through the maths i would say you earn a semi decent income a good bit above the average, no?

(getting my figs from the following: http://www.budget.gov.ie/Budgets/2009Supp/2009Supp.aspx - Annex A, page 11 or so, subtract back mortgage interest relief, child benefit, and any other common reliefs).

From a very cold-hearted view as well, middle class families are the least likely to leave the country given how tied in to the country they are (ie mortgage, kids in school etc). Young single people or the very wealthy are both much more mobile and could easily leave the country for other countries with lower tax. As such, any significant tax increases on them is more than likely going to see material amounts of these people leave the state for pastures new.

I’m not talking about massively taxing middle class families, but simply raising their average tax paid to something closer to 15% rather than the 0-10% they currently do, and this would be done at the same time as increasing the portion paid by those at the top towards 40% (they already pay above 30%). At the moment almost all low income workers and most lower-to-middle middle class families essentially exist out side of the tax net, and it seems bizarre to ask everyone else to take the burden of any tax adjustment without including them.

As a returned emigrant having worked in the U.S. for 8 years I am amazed at how little I take home from my salary as a single income family compared to what I would keep in the U.S. (and that’s allowing for the higher health insurance costs in the U.S.). I can ensure you my tax burden is closer to 22% of my take home pay allowing for child benefit. At the end of each month I am dipping into savings to make ends meet - so I don’t know where all the wise owls here are getting there figures on a vast pool of rich families to tap. I am private sector, no pension, and pay all of my families costs such as basic-level V.H.I.

The devil is in the details. In Ireland, children receive ‘benefit’ i.e. we all pay in and families get money back per child - in the U.S. children are ‘credits’, you file your tax and pay less if you have children. The distinction is minor but critical. The broad consensus amongst the forum contributors and the non-families at large is to hack away at child benefit; in the U.S. it would never even be considered to reduce the tax credit per child. Individuals have forgotten the purpose of the benefit is for the child, not the parents. Last time I looked children don’t run on solar power so they have to be fed, clothed, educated and all-to-frequently sent to the doctor! These are costs - critical costs necessary to raise future high PAYE contributors. It’s this for which I play my part. The consequences of not doing so is what we see happening in Japan today.

Families - like mine - have already taken a considerable hit; loss of the early childcare supplement, the widening of the PRSI net and health levy, the extra levy charge. These are burdens we all have but are burdens which hit families hardest because - as is our case - there are two adults and two children to support from one pay cheque. We have no mortgage - so no mortgage relief - but we have probably “saved” my family 50-100K from not owning an underwater property. For that I am grateful, but at the same time it wasn’t rocket science to figure out the world was in a property bubble, it was just a matter of waiting for it all to collapse.

I think it’s fair to say I am doing the majority of the family-bashers a favour by taking on the costs of raising children who hopefully will grow to become PAYE contributors of their own. In twenty years time my children will start contributing and eventually work towards covering the costs of myself, my wife and the forum members of this board will become on public services.

Of course, nobody here - or more critically - in government has stopped for one second to think outside of their own selfish considerations. The solutions been put forward have come from the very same minds which created the economic mess we are in.

Families should be the last group been taxed.

Declan

well i would assume that at least some tax incentive schemes are productive or add value to the economy (the film schemes apparently pay for themselves), and some may be required for other policy goals (ie investing in Ballymun for instance). Tax schemes in and of themselves arent bad ideas, its just that they became so broad and vague in nature (hotel investment, investment in even remotely poorer-than-average areas) that they stopped being about policy goals and just became random-investment-for-tax-sheltering schemes. 90% of them probably now fall under this label.

completely agree, have no issue at all with closing off 90% of the current tax shelter schemes. Anyone know what that would be worth now (rather than 2 yrs ago)?

i agree completely.

As of 2007, a household on the average industrial wage pays an average tax rate of almost exactly 0% after child benefit is taken into account. Yes, zero. (http://www.ronanlyons.com/2009/04/27/are-irish-workers-undertaxed/)

Even after the recent income and health levys, a somewhat middle middle class family earning 60k per year only pays around 11% in actual tax after you include social transfers such as child benefit and mortgage interest relief. In 2007 it would have been around 7%.

Again, at the risk of repeating myself, and while not advocating tax hikes, if you really want to maintain expenditure levels as is by creating a sustainable tax base, or seriously go about cutting the deficit, you simply must bring these people into the tax net. I have to imagine that the proportion of ‘tax units’ earning 60k or less is around 75% of the workforce. As such, 75% of the working population currently contributes very little in actual income tax as a proportion of their wealth. So we could be looking at well over a million people in employment paying less than 10% in actual tax. I’m all for progressive tax systems where the wealthy pay the bulk of the tax burden, but this seems ridiculous.

By the by, im single with no dependents, and as such i pay around 36% of my income in tax. I am by no means ‘wealthy’, i’d put myself as somewhere towards the higher end of the middle-middle-class category. If you try to raise my taxes above 40% while maintaining the status quo for those below me (ie 10% or so), then i really will start to consider leaving this country for the UK or Australia.

I would suggest that the onus is therefore on those who advocate either maintaining public sector expenditure as is to explain to middle class families why they should pay up to 10% of their pay in additional tax.

You have it right on the button. Just don’t expect anyone, except the Five Sigmas, to pay any heed. The herd have a business-as-usual response- which in the current predicament is completely useless. Keep at it.

B Peter

If you want to collect more tax
1. Remove all the tax shelters. Simplify the system. we don’t need schemes for hotels, car parks or holiday homes any more, if we ever did need them.
2. Bring more people into the tax net. 700,000 people paying €1000 more on average brings in €700m.
3. Tax children’s allowance (easier than means testing).
4. Introduce a property tax to replace stamp duty. Other countries do it, it can’t be beyond the wit of the Dof to come up with a similar one (unless of course we want to reinvent the wheel which we usually do)

But as others have pointed out we might be able to stomach higher taxes if we thought we were getting half decent services for them. Instead we have the impression (rightly or wrongly) that we’re paying for overstaffed, overpaid, underworked public servants with fabulous pension entitlements.

you’re right.

But someone on 275k per year will still pay 4.07% in income levy’s alone, with this approaching 6% as their income increases.

Not sure how you could guess what the health levy is, but given that its now at between 4-5% on all taxable income, we can assume their is at least 1-2% there at a minimum.

So overall there’s 5-6%+ in additional tax on top of the old figures.

“In the meantime, taxes on the top-end have gone by 8.5% (that’s 2.5% in extra health levy and a 6% income levy on 175k+). Also note that these levies are immune to sheltering.

So the high-earners are *already* up close to the 37.5% that you propose. And yet revenue continues to collapse”

I think you’re confusing marginal and average tax rates here. Marginal rates have risen significantly, but average rates will have risen a lot less.