Eoin we don’t have a severely imbalanced tax base - we have a severely imbalanced income tax base. There is a huge difference. Much of the other tax sources are regressive. Lower income earners pay a higher proportion of their income in VAT. For anything that is a fixed charge a lower income earner is paying a higher proportion of their income for that fixed charge.

Also as is often said - higher income earners can avail of the services of accountants - who will often be able to reduce their tax burden. This option is not practically available to lower income earners.

no. I would however back a broad range of tax measures designed to increase the income tax take by 1bn and which hit all income earners by a similar % amount. We already have a severly imbalanced tax base, where 9% of people pay around 60% of all tax (€33k each), while 40% of people pay around 6% of all tax (c. €750 each). Increasing the % taken from the higher end would only imbalance this more and make it even less sustainable than it already is.

Eoin if the planned 4 billion in cuts goes ahead in this years budget (I support this by the way) would you unequivocally then support a new tax band on those earning above 75K in December 2010 designed to raise 1 billion? (out of the 4 Billion necessary in 2010).

where exactly do i say im unwilling to tax higher earners?

From me:

“Fine, bring in increased taxation at the top end of the income ladder, but there is so so so much more work that needs to be done at the bottom if we’re to make any significant progress on closing the gap.”

“By all means, suggest levying this tax increase, but please dont pretend its going to do anything significant by itself to cut the deficit.”

I’ve simply said that the union talking point that taxing the “rich” will somehow avoid the need for public sector cuts, is in fact a load of crap. This was the central theme to Karls point, regardless of what you believe. We already have a ridiculously progressive taxation system. Even if 75k was “rich” (which it really really isnt), we’d only get 25% of the way there towards this years cuts (never mind future years). Lets at least be honest that any major tax revenue increases, on a sustainable basis, are going to have to see more of the overall burden, and not less, go on those lower down the income chain.

This is why i have advocated either spending cuts first, recycling of public sector spending savings into private sector job creation second, and only then should we look to increase taxes. The simple facts are that the public sector unions are advocating for middle and lower class tax increases to keep public sector wages as is. People in favour of keeping benefits as is are arguing for the same lower and middle class earners to pay for a sustained benefits system in a deflationary environment.

At no stage have i seen anyone on the pro-tax-increase side of the argument admit this reality. Look at the opposition response to FF/GP’s suggestion about cutting child benefit or the social welfare xmas bonus! No one is willing to admit that there are going to have to be specific cuts across the board, the only thing we hear is that we need to “tax the rich” and we’ll all be grand. It’s distressing to see so little honesty.

The disconnect is absolutely amazing

1.3 billion off public sector pay and pensions - not very significant (only 6%) therefore not worth doing
1 Billion (or whatever) off social welfare - not very significant (only 5%) therefore not worth doing
etc. etc

75 K may not make you rich or wealthy but you are certainly comfortable. I don’t know the exact figures but it does put you in the top 10% - and (another disconnect!) - its a marginal tax rate - so someone on 75K won’t notice it.

All cuts have negative effects on consumer demand!!!

Lets be clear here - I am arguing against special pleading - by any sector - including high income earners. You appear to be happy to cut everyone except high income earners. I say cut everyone including high income earners. Are we not all in it together?

“very significant”? Like 5%? I’d say its a material amount, but not a “very significant amount”. Given that these are 2006 figures we are working off, something more like 3-4% are more likely to be gained. And thats before the negative effects on consumer demand and potential emmigration. By all means, suggest levying this tax increase, but please dont pretend its going to do anything significant by itself to cut the deficit. As Lenny said, there aint no ‘pot of gold’ out there waiting to be taxed.

And does earning 75k now classify you as rich or wealthy? I’d actually appreciate some honesty here, because ICTU has been completely unwilling to put a number on what they consider ‘rich/wealthy’.

“With the politics of this country”? Eh, isn’t that called democracy?

using Karls own terminology and numbers - you would raise 1.1 billion by taxing incomes higher than 75,000 at the new rate. Now:

1. That is a very significant contribution to reducing the deficit and
2. You would clearly be taxing a minority of the population

Hence you could easily persuade a majority that significant revenue can be raised by “Taxing other people”.

Karl may not explicitly use the term “not worth introducing” but I think its pedantic to suggest that that is not the whole thrust of his article. If I am wrong about this perhaps Karl could clarify the issue for us?

So to amend your list:

- A new temporary tax band on income earners above 75,000 needs to be introduced to raise 1bn pa. This should be done immediately.
- Public sector wages need to be significantly cut
- benefits need to be materially cut
- income taxes need to be increased on the lower/middle middle classes
- property taxes need to be introduced (on all homes, regardless of price)
- unproductive tax reliefs need to be drastically cut

And to address any worries about whether the proposed tax band would actually be temporary - With the politics of this country it would without doubt be removed at the earliest possible opportunity.

where exactly does Karl say “its not worth introducing a new tax band as it won’t raise much revenue”?

His closing remarks: “The bottom line that I take from these figures is that it is not possible to raise amounts of tax revenue that would make significant inroads into the budget deficit if one insists on convincing the majority of the population that this can be done by taxing other people.”

Its not that its “not worth introducing”, its simply that its not going to do much on its own when we have a 20bn or so fiscal deficit. It’s therefore intellectually dishonest (its downright lying to be perfectly frank) for the Unions to continue to angrily rant that if only we taxed the wealthy more heavily we’d all be grand.

- Public sector wages need to be significantly cut
- benefits need to be materially cut
- income taxes need to be increased on the lower/middle middle classes
- property taxes need to be introduced (on all homes, regardless of price)
- unproductive tax reliefs need to be drastically cut

Regarding the idea that we idea that we have a highly progressive income tax set-up thats as may be if you look at income tax in isolation but as soon as you take VAT and other non-progressive taxes into account the picture looks very different - and this is not even mentioning the tax breaks available to higher income earners.

What I would say to the apologists for the wealthy (this is not directed at you Karl) - Is that if you are so against a higher tax band - which has some validity in economic theory over the long run - why don’t you support a property tax.

The lack of a property tax is one of the most inequitable features of the tax landscape in Ireland and is well known to be one of the most economically advantageous ways of raising revenue - there is no where to hide on this one.

What we should be aiming at over the medium/long term is:

1 A significant property tax
2 Medium level of income taxes - no higher than 50%
3 Complete removal of all the ridiculous tax shelters, exemptions etc. - all these do is add a large drag to the economy (employing accountants etc.), mis-allocate resources, while simultaneously adding to the perceived unfairness of the system

4. A general sense of a fair but lowish taxation level throughout the economy - that way you will get buy in from everyone.

“That is, falling activity and falling taxes play a bigger role in the deficit than do rising spending”

Agreed. The problem is that the ‘falling’ taxes are better described as disappearing taxes, in that stamp duty, vat and capital gains receipts from construction related activity are not going to return to previous levels for the next decade. They were a one off that should have been used for either infrastructure, the NPRF, or debt reduction. They should NOT have been used to go against current expenditure.

1. GNP is a closer measurement of our income than GDP. The difference is, I believe somewhere north of 15% - around 18%. The difference is accounted for by transfer pricing of multi-nationals. GDP is pressed into service by every supporter of increased government spending and taxation.

I don’t know what you mean by ‘exports are taxable’. Can you explain?

2. Public spending last year was 40% of GNP. Now telling me that this is not the highest in Europe is not an argument. Public finances are in a mess in other EU countries also.

3. Our public servants are the best paid in Europe

4. Our effective marginal taxes are as high as the highest European countries.

5. Some government-owned monopolies - e.g. Eirgrid - pay themselves an AVERAGE of 115000 - we pay the most / or second most for electricity in Europe.

6. Government spending dramatically increased - for no very good reason during the Celtic Tiger on the basis that the government received wind-fall revenue from property and other transactions.

This money is now gone.

7. Benchmarking was a fraudulent exercise…

You have to try and get the concept that, sometimes, governments treat other people’s property as something that can be transferred to powerful vested interests - semi-state workers in the ESB for example - or paid to its own direct staff - benchmarking for example.

The issue of the MNC transfer-pricing is well-known.

But it is a red herring to insist on measuring Ireland’s deficits in terms of GNP. It does not invalidate the point about the relative size of Ireland’s public sector, for 2 reasons:

1. The GNP measure would puts Ireland’s public sector expenditure at 39.4%, that would then be the second lowest in the Euro Area, just above Spain and still way below the average level of 47.4%.

2. Exports are themselves taxable, so GDP is the appropriate comparative measure.

In either calculation, it is is impossible to draw the inference that Ireland’s public sector is ‘bloated’.

As for the statement, “The public sector bears more responsibility for the crisis than any other sector for the simple reason that it, and it + social welfare (given that NAMA is off balance sheet at the moment) accounts for the fiscal deficit. ” That’s a real head-scratcher.

As for the on-balance sheet public deficit, the source of that is crystal clear. “Government saving fell by €11.2bn in 2008….this change is mainly explained by a change in revenue from current taxes on income and wealth of €3.4bn and an increase in social benefits of almost €3bn”. That is, falling activity and falling taxes play a bigger role in the deficit than do rising spending, the overwhelming bulk of which is too a recession effect.

The NAMA borrowing will be real money, underwritten by taxpayers. Unusual accounting methods don’t change that.

MTRs of 50%+ on 36-40k wages are not sensible by any measure.

Either are ATRs of sub-5% on million incomes.

Still substantial as it would represent about one-seventh of this year’s target. Mind you, I accept that a further “rich persons” tax could not be (easily) introduced in subsequent years. Just shows the scale of the problem.

I was probably over doing it a tad there. But lets say we’re starting off 20bn this year - 16bn next year, 14bn in 2011, 11bn in 2012 and 9bn in 2013, so 50bn in the next 4 years, and thats being reasonably optimistic. Either way, the tax measure suggested would be equal to 4.4% of that total. It still in the limited or unsubstantial column, no?

over 4 years we’re likely to run up total deficits in the region of 60-70bn. I wouldn’t call a measure which reduces this by 3.5% or so “substantial”.

“If we don’t raise income taxes on the superrich in the short-term”

Did you even look at Karl’s spreadsheet? If we are to increase taxes (lets make that a side argument), the reality is that the million or so people who pay reasonably low levels of tax at the moment are going to have to be majorly involved in taking on much of the fiscal adjustment. This notion that there’s tons of wealth our there that can easily be taxed and make a critical difference to the fiscal deficit needs to stop. Fine, bring in increased taxation at the top end of the income ladder, but there is so so so much more work that needs to be done at the bottom if we’re to make any significant progress on closing the gap.

I think its intellectiually dishonest as well as self-defeating to try and have one of the most progressive tax regimes in the developed world try and aggressively increase taxation on the upper end of the income ladder whilst almost ignoring any measures for the bottom end which contributes little as it currently stands.

And what exactly constitutes ’super rich’ in your opinion?

Based on your figures a third rate applied to tax cases earning over €150k a year would yield about €2.2 over four years. Surely this is would be substantial rather then limited?

But I do think Karl’s point that taxing the rich alone won’t solve all our problems is worth spelling out. For that, the spreadsheet is very useful.

Many more - maybe even most - people will swallow tax increases in the middle and bottom of the distribution if tax breaks are cut and rates at the top increase. This is an additional argument in favour of taxing ‘the rich’.

@Eoin
We have run ourselves on a corporatist basis for many years and were lead by a self-described socialist. At the very least there is a great deal of doubt about whether we are a low tax country or a boom country that kept income taxes low. If we don’t raise income taxes on the superrich in the short-term we will make it much more likely that we become a high-tax country in the long-term.

You are deluding yourself. This business of comparing Government Expenditure to a % of GDP is a joke when everyone knows including the CSO, Government and Revenue that our GDP figures are totally distorted by Multinationals who operate high Transfer Prices out of Ireland to avail of the 10% and 12.5% rates of taxes here. In an earlier life I worked for a Multinational and I know it to be the case.

If you check out the actual ESRI research to which you refer you’ll find that it says that a public sector pay premium is in fact the norm internationally, albeit that the Irish premium is unusually large.

Also, as the ESRI has demonstrated it’s better paid than the private sector - something which is, so far as I know, unique certainly in any Anglo-Saxon economy….and I suspect unusual even in Europe.