Good response!

“If the price of a tentsite in Donnybrook rises hugely, that is precisely because the ’shelter value’ has risen.”
You see, that’s where I differ (probably with all of economics, to be honest! It’s great to be an amateur and be untramelled by dogma… or even logic!).

To me, rent value = income, income = money, money = current generation. I think of land as a deferred tax asset and shelter too. You get the use of it for as long as you live and then that’s it. While you are living in it, a tent is just a tent. Build a gin palace on it, and you’ve paid tax on labour and materials. Then it is still a roof over your head.

Personally, I’d remove inheritance tax exemptions, have graded rates (much like income tax) and put a stop to this handing down of hoarded wealth. I got nothing from my parents (they’re still alive, so it’d be a bit mean!). I expect nothing from them. I’ll leave a bit to my children and grandchildren if I have any, but I fully expect to liquidate my assets and spend them.

“It gives people a false sense of isolation and impedes the performance of civic duty. Irish people - some of the most home ownership dependent in Europe - are remarkable for having very comfortable homes. Clean, cozy, warm, with lovely gardens. But then they go out in public, vomit on the footpaths, fire bags of litter everywhere and generally show contempt for the concept of shared ownership and responsibility.”
I think you are taking a section of society out of context. The bad elements in, for example, Moyross exist in private ownership too. I doubt that it is home ownership that does it.

If you want to know why people are absolved from society, try looking at two working parents, both out of the house from 8-7, five days a week. Not all ghost estate have nobody living in them!

I think, though, that there is an over-reliance on housing as a measure of success.
“Well, debt is a funny word. If I owner-occupy a house worth 300k and I have a mortgage of 300k, I would not think of myself as being in debt. My balance sheet is at zero.”
No it isn’t. You have goodwill of 300k, but as we all know, goodwill isn’t worth sh1t. House prices go up and they come down. You don’t know how much of an ‘asset’ you have until you sell it. And then if you did, where would you live? What you have is a debt of 300k and somethere to live.

Sorry I left the office just before your email came in. In case you haven’t yet abandoned this thread - which has become a bit of a bilateral discussion methinks, I will respond:

“What I mean is that it is not income. If I lived on a tent on a site in Donnybrook and Donnybrook prices rose hugely, you’d be taxing me on a gain that doesn’t alter the shelter value of where I live. Presumably if the equity falls, you’d be giving me some of that back?”

If the price of a tentsite in Donnybrook rises hugely, that is precisely because the ’shelter value’ has risen. Land only has value because it can be rented out. If the equity falls, it will be because the rent falls. Naturally then, your income would fall.

“Equity is not income. It is a mythical market quality that has no meaning until it is liquidated. I can say my house is worth a million quid, estate agents can say it, valuers can say it. But unless some greater fool is prepared to offer it to me and I accept it, it is still just a house.”

See above. Equity is (or at least should be!) defined as the net present value of the stream of income which the asset can generate. In other words, equity is precisely income. If there is a difference, it is only because of the tax distortions and market rigidities our bad policies have worked into the market (such as tax breaks for unearned property income). We can correct these.

Even if some rigidities remain, what I proposed was to tax the imputed rent, not the equity directly. So if the market is in some superbubble whereby a 3br house in Clonskeagh has a “market value” of a million, but only rents for €1,200, you only pay the tax on the €1,200 - not the finance cost of the bubble equity.

“you are only proposing to do this for people who don’t have debt. You are taxing prudence, and in my family prudence wears the trousers. Too much debt on too loose terms got us into the mess we are in. Even more isn’t going to get us out…”

Well, debt is a funny word. If I owner-occupy a house worth 300k and I have a mortgage of 300k, I would not think of myself as being in debt. My balance sheet is at zero.

However, if I borrow 30k to buy cocaine and private dancers, the second I awake from my drug-induced den of depravity, I can think of myself as ‘in debt’, because I possess no assets equal to the value of my liabilities.

What you label ‘prudence’, I label ‘hoarding productivity in unproductive asset classes’.

“That I choose not to secure any debt on it is my business. That other people choose to buy houses over 20, 30, 40 years is their business. That governments choose to inflate property markets to benefit sectional interests (who if they were as smart as they like to tell us they are wouldn’t need the help) is unjust.”

Yeah, I mean I see where you are coming from. But then again, I have a strong anti-government streak in me that craves a farm in Nebraska, a dog named Krog, a barrel of shotgun shells and a bomb shelter. And certainly I agree that the govt has mismanaged the property market and the banks are attempting to rob us blind.

I don’t like the idea of taxing any income - earned or unearned. But the reality is we are social creatures living in an intrinsically hostile environment. We need socialised medicine, schools, roads and public defence, and we need taxes to pay for these things. These taxes necessarily represent an interference in what would otherwise be “your business” - whether that business entails produce shoes and selling them to punters, or whether it entails owning a house and renting it to yourself.

I think I am as virulent a Nama opponent as you are - but let’s not confound the issues. Even if we take the least-cost nationalisation option to dealing with the banks, we are still going to need a huge fiscal adjustment. Part of that will inevitably mean more taxes, and that’s what this thread is about.

“What is your ideological opposition to home ownership anyway?”

I see overreliance on home ownership as part of the problem. It gives people a false sense of isolation and impedes the performance of civic duty. Irish people - some of the most home ownership dependent in Europe - are remarkable for having very comfortable homes. Clean, cozy, warm, with lovely gardens. But then they go out in public, vomit on the footpaths, fire bags of litter everywhere and generally show contempt for the concept of shared ownership and responsibility.

The home ownership mentality is also related to the non-performance of civic duties. Irish people demand that their local TDs treat their constituencies the same way - get as much as you can for Kerry South and f**k the rest of the country.

I should stress, though, that I think home ownership does have its place in society. People want homes and families and that is all well and good. But we don’t need to create tax distortions to support those preferences. The market is happy to provide at cost.

What I mean is that it is not income. If I lived on a tent on a site in Donnybrook and Donnybrook prices rose hugely, you’d be taxing me on a gain that doesn’t alter the shelter value of where I live. Presumably if the equity falls, you’d be giving me some of that back?

Equity is not income. It is a mythical market quality that has no meaning until it is liquidated. I can say my house is worth a million quid, estate agents can say it, valuers can say it. But unless some greater fool is prepared to offer it to me and I accept it, it is still just a house.

That I choose not to secure any debt on it is my business. That other people choose to buy houses over 20, 30, 40 years is their business. That governments choose to inflate property markets to benefit sectional interests (who if they were as smart as they like to tell us they are wouldn’t need the help) is unjust.

“What I am saying is that this less efficient and less just than abolishing the current tax break on imputed rental income.”
Yes, but you are only proposing to do this for people who don’t have debt. You are taxing prudence, and in my family prudence wears the trousers. Too much debt on too loose terms got us into the mess we are in. Even more isn’t going to get us out…

What is your ideological opposition to home ownership anyway?

“But you are planning to do both. With an unfair exception for people who borrowed to buy stuff they cannot afford.”

No, I’m not planning to do both. I’m not even proposing that both should be done. My comments are being made in the context of a govt budget which will propose drastic increasing in tax on labour income. What I am saying is that this less efficient and less just than abolishing the current tax break on imputed rental income.

“Ah, ‘economic justice’, this would be some scoundrelous version of schoolboy communism? So it is justice to tax the prudent more than the profligate?”

I don’t know if you are just being flippant or not. Certainly, I consider my concept of economic justice to be more than a scoundrelous (sic) version of schoolboy communism.

What I have said numerous times above, and will not repeat again, is that it is more economically just to tax unearned income than to tax earned income. If you choose to dub this schoolboyish, communist or whatever, that is fine but it is not a substantive debating point.

“The fact that you paid off a mortgage does not, in my concept of economic justice, merit a special tax break.”
Ah, ‘economic justice’, this would be some scoundrelous version of schoolboy communism? So it is justice to tax the prudent more than the profligate?

If you object to property, as others have pointed out, the fair way to do it is property tax. You are proposing to overturn a perceived unfairness (that people saved up for something rather than buying it on the never-never) by increasing the unfairness (by removing the consequences of unsustainable debt).

“In other words, not having an imputed rental tax punishes the renter”
Hey, if I’d continued renting, I would have far, far, more money in the bank.

An interesting point. I guess my feeling is that from our current point of view, this may appear to be the case, but that is because we are looking at it from a situation in which odd incentives have become embedded in the system (and the mind!).

Of course taxing property equity income reduces the incentive to earn off property equity, as you point out, but no more than taxing labour income reduces the incentive to work.

Bringing the rate of home ownership down a few percentage points would not be a bad thing, IMHO.

@yoganmahew
“So the fact I paid off my mortgage during my lifetime is going to get me a larger tax bill and reduce the money I put into the economy directly?”

Well, as for reducing the money you put into the economy, we can take the total tax burden as constant - either we tax your labour income or your property income. The effect on the circular flow of income is the same.

The fact that you paid off a mortgage does not, in my concept of economic justice, merit a special tax break.

Look at it this way: If you had chosen to rent for those 20 years instead and the expected change in property prices is zero, for a housing market in equilibrium, then the risk weighted cost of servicing the mortgage should equal your rent.

So instead of paying mortgage interest, you paid rent. Instead of paying principal, you put that money into a saving account.

At the end of the twenty years, you invest that money in a shoe factory. You produce lovely shoes and earn income off the factory exactly equal to the rent you are (still) paying.

Only this income is taxed!

In other words, not having an imputed rental tax punishes the renter / shoe factory owner for having chosen to invest in shoes instead of investing in home equity.

If you object so much to inherited wealth, why not just remove the exemption for inherited assets and increase CAT rates?

I can see no justification for taxing the debt free more than the indebted, neither economic nor moral.

And when the next property bubble is blown, I pay increasing amounts of tax while foolish speculators get their tax bill written off because of their ‘onerous’ debt - debt they choose to take on against advice that they didn’t like (that there was a property bubble).

Finally, there is no point in having a tax on something that would be as ridiculously damaging to the economy (in that it would promote excessive credit takeup) and as easy to avoid for the rich (who seem to be rich on a gross scale and not on a net one as we have recently found out).

If you want to level society, level it at the point of income. If you want to raze it, then by all means encourage debt slavery.

That’s right. There are similarities to property tax but the economic logic is somewhat different.

I’m proposing a tax on the use-value of the equity. So, if a young couple buys a house with a 1,500 EUR / month mortgage interest payment and the rental value is 1,500 / month, they only pay income tax on the net imputed rental income i.e. 1,500 minus 1,500 equals zero. So they pay no tax.

But if they inherit that same 3br in Lucan (therefore have no mortgage), they will be liable to pay full income tax on the 1,500 they earn by renting the property to themselves, just as if they chose to rent elsewhere and recieve actual rental income from a tenant.

This is not simply a way of measuring the value of the house for a property tax, as Dreaded Estate states, because it only taxes the equity component of the house, thereby correcting an anti-rental market bias which a straight property tax would entail.

Of course, you can levy a straight property tax and put in place tax breaks and deductions for mortgage repayments, etc. but that is backwards logic.

A property tax should be a separate thing, and it should capture the cost of the negative externalities associated with a private home. This is not a function of the title-holder’s equity stake in the property, nor whether he collected the rent from himself or someone else.

I jest not. And the comparison with taxing health is a straw man. The difference between taxing health and taxing unearned income from housing equity is night and day. For one thing, health is almost impossible to measure or even define. For another thing, better health is indirectly taxed more, as it permits the healthy to work harder and earn more money. Indeed, the conventional approach to taxing labour is almost a perfect proxy for taxing health, if you define the concept of health broadly.

The crucial point is that it is more acceptable to tax imputed rents, which represent unearned income, than to tax labour, which is earned income.

@ Karl,

I dispute your argument on the indirect taxes. Firstly, the GDP denominator used in the Statistical Annex (also one of my favourite publications BTW) once again throws off a cross-country comparison, as repatriated profits flowing out of Ireland are not part of the household income base on which indirect taxes are levied. That more than compensates the difference in the comparison you use with the EU15.

Secondly, the composition of indirect taxes is what matters. VAT is proportionate (for the most part!), but the regressivity in Ireland is largely a result of a very high reliance on excise taxes. Thus, to get poetic about it, progressivity gets washed down the gullet of low income punters in Ireland to a greater extent than the EU15.

I do not have the figures to hand, but my instincts tell me that this reliance is likely to have grown over the past couple of years, as the YED of excise taxed goods and services is lower than average.

I take your point on your most interesting ‘flat tax with a threshold proposal’. And respectively withdraw my remarks concerning your zeal to tax the poor. However, I think you will accept that your proposal is probably too radical, and that in practice broadening the tax base will equate to taxing the relatively poor.

Personal allowances/credits €6.57bn
Age credit and exemption €0.08bn
Medical insurance €0.37bn
Pension contributions €2.46bn
Interest relief €0.35bn
Of which: On principal €0.28bn
Social schemes €0.98bn
Of which: Rent in €0.05bn
Third level education fees €0.01bn
Exemption of child benefit €0.37bn
Trade union subscriptions €0.01bn
Saving and investment schemes €0.69bn
Total income-tax expenditures €11.49bn

The total is really €12.2bn

My Orwellian comment was not directed in a personal criticism of either you or E43B. I was commenting on the policy’s, comments ideas etc, not on the individual.

Your comment that tax breaks are iniquitous is a very strong statement indeed. I do not agree with you there.

Obviously if a tax break is not properly thought through then one side can obtain a unfair advantage over the other. The westlink toll bridge could be used as an example here. I don’t know if you could calculate the cost of the loss to the tax payer ( I am talking generally, not personally) but while the public were delighted that a bridge was built, and then a second bridge, it came at a heavy cost with tolls, long waiting times etc etc. There was even a public outcry for the gates to be opened when the traffic backed up to Finglas etc.

But if the state is unable (or unwilling) to provide a service which is required one example being student accomodation, then either society goes without the service, or a private individual (or firm) undertakes to provide it. Obviously a private firm is not going to do it for charity, there has to be an incentive for them and usually it is in the form of cash reward. I do not understand how you could see this as wicked, immoral or intrinsically evil.

In relation to your comment about Irish passport holders, there are thousands of Irish passport holders all over the world. Just one example, I know of a gentleman from former Rhodesia, he obtained a Irish passport from his wife, she was able to obtain a I.Passport by virtue of her mother being Irish. Passports were obtained and they fled the country as it was politically unstable etc.

He now lives in Glasgow, pays his taxes to the British Crown. However he pays no income tax to the Irish Revenue. Is that example iniquitous?

I know of a neighbour who was elderly, he developed a growth behind his ear, went to the doctor had it investigated and the growth was deemed cancerous and would have to be removed etc. As he was a public patient he had to wait for 6 months before he could be admitted for operation etc.
All the time the growth got deeper and bigger, so when he was operated on it was a much bigger job. This was distressing as he was a OAP and obviously took a toll on his health etc etc. If he was a private patient then he could have been operated on within a month. So in this example would setting up a private hospital to treat private patients be iniquitous?

The point I am making is not all examples in life are the same, making broad sweeping statements that all tax breaks are intrinisically evil is unfair and will do more harm than good in the long run.

My submission is that tax breaks (or whatever you like to term them) are iniquitous - which is a factual statement, not a value (bad/good) judgment. If they are prohibited by constitution (as opposed to statute) - then we are all mis-treated to the same level of unfairness - if you want a philosopher’s take on the matter.

Think of it as an infant which has been accustomed to a pacifier. They become a tad ‘old’. So you take it away. Tantrums for a few days. If you are a foolish parent you substitute a ‘blankie’!!! You only are postponing the ‘evil’ day.

As Mr Keane would say, ‘Get over it!’.

You can then have a ‘basic’ tax rate for all; for all incomes. Rate should include compulsory contributions for health, pensions and soc. welfare - or whatever. Oh, and tax exiles are NOT exempt. You hold an Irish passport - you pay!!! No exceptions any more.

Thanks again. (Just in case: I am NOT a socialist, quite the opposite according to my family) Funny that.

B Peter.

This chart which I have compiled would seem to confirm your views
http://www.planware.org/briansblog/resources/taxratechart.pdf

It shows the effective and marginal tax rates (combining income tax, the 2 levies and PRSI) for taxable incomes from zero to a million in 10k jumps for 2009. The only credits taken into account related to marital status so the rates depicted at every income level are maximums. Notable features include:
- the erratic growth in the overall marginal rate before it settles down at 52%.
- the rapidity of the increase in overall effective rate from €20k up to €80k. The overall rate tapers off thereafter and effectively flatlines at about €500k.
- the difference in effective rates for singles, married (one income) and married (dual income) particularly at low incomes.

Note that the overall rates takes account of the mix of single and married income tax payers at each income step based on Revenue data for 2005 - this wouldn’t have changed much since then.

It has occurred to me when observing IBEC types or economists emitting about wage restraint, what goes through their own minds when it’s the time of the annual reviews?

On taxing the lower paid, how manageable is life on say the average industrial wage, with two or three children and one parent is a homeminder?

You live a few miles from the local factory in a rural area, with no public transport, so a car is required and so on.

Even if both partners wish to work, it may not be an economic proposition.

Of course, being unemployed is a worse fate.

As former taoiseach Charles Haughey said: “we are living away beyond our means.”

Twenty-nine years later, this is the scenario, albeit on a less exalted scale at political leadership level.

The worker on the average industrial wage is likely to have no occupational pension, while the people making decisions on whether he or she should pay more tax may have three pensions funded from the public purse.

“Some people say there will be an inflationary spiral in the future (although I don’t understand the mechanism by which this will come about).”
Neither do I! I’d love that one explained. I agree with you that debtors would benefit in the event of inflation, provided their incomes went up. This is the imponderable of even severe inflation - interest rates rise, prices rise, do salaries rise to match?

I can guarantee you there will be no bailout for savers who lose out as a result of inflation. Not only are savers not incentivised, but DIRT means they are penalised. Savers have been net losers over the last ten years, SSIAs notwithstanding, of rampant inflation in this country.

To propose all tax breaks are bad is unfair. Tax breaks have been provided in numerous situations in the past etc.

There has to be reward for business people to take on risk and grow business and employment.

For example if we did not invite private enterprise a lot of public infrastructure would never have been built. For example the Westlink toll bridge, do you seriously think the civil service would ever have built it? What about the LUAS lines, private hospitals, student accomodation etc.

Bertie Ahern admitted it himself, he thought there was something wrong with the public service way of doing things. The private sector is able to complete various projects (roads or schools or hospitals) on time and on budget. This is something the public service does not do very well.

Some tax breaks like section 50 (student rental accomodation) had a positive impact. Students are normally cash poor, but the idea of renting cheap accomodation is somthing that is positive. Obviously if the landlord is to invest capital in something which gives a lower return then something has to give. Hence the landlord could offset rental return for so many years etc. This idea helped the student, it helped the landlord or investor and the state benefitted in the long by having a more educated productive workforce to attract FDI etc.

There are other examples such as city centre car parking for example. Some car parks would never have been built if it were not for tax breaks etc.

Tax breaks are a attractive way of getting something done by the private sector for the greater benefit of society, wheter it be a hospital, road, car park, bridge etc. Obviously it has to be beneficial to all sides.

To propose all tax breaks are bad has a very Orwellian tone, “Two legs bad, Four legs good”. This blanket approach will not help Ireland get out of this mess.

Equity capital has already been completely absorbed. There is no more capacity there. The government has started kicking in money to absorb debt as well. But it has only relieved a small number of big players. It hasn’t done much for the vast number of small players.

It is hard to know what the future will hold in terms of interest rates or anything else, and it is not easy to anticipate. We are in deflation at the moment. Some people say there will be an inflationary spiral in the future (although I don’t understand the mechanism by which this will come about). If this happens, then people with a lot of debt and a lot of property will benefit from this and they will be less in need of relief. Prudent people with savings, no debt and relatively little property will be the losers in that circumstance and maybe they will be the ones needing help.

Definitely kick in way too early. As for too high, perhaps not yet but I’d wonder whether gains from hiking up over 60% would really materialise. That said, I don’t claim that empirical work on tax elasticities is an area of expertise of mine.

Is it your view that 50-56% marginal rates are too high or just that these kinds of rates are kicking in way too early? With UK top rates due to hit 50% in April this kind of marginal rate is not exactly terra incognita internationally, let alone historically (where top rates up to 80% were normal in the pre-Thatcher/Reagan era).

the tax system is, at the very core, “inequitable” in its progressiveness. We tell people that as they get wealthier, they must contribute more of their income to society. We generally accept this as a way of running a just, functional and productive society/economy. Why is it so bizarre as to offer these same people a saving on this tax if they invest their income in such a way as to meet a policy goal?

We can all discuss the merits (or lack of) of the current tax breaks as is, but i think it would be foolish, counter productive and hypocritical to “ban” them in totality.

surely some tax breaks are justifiable? Investment in the Ballymun regeneration scheme? Tax breaks to attract foreign capital into the country like Intel etc that easily pays for itself? Tax breaks to keep certain industries within the country, ie horse breeding (if we were relatively certain they would leave without it)?

Its the tax breaks, silly! That is, we need URGENT tax reforms. If you cannot stomach this, then God help us - (us ‘ordinary’ taxpayer’s, that is).

Tax breaks should be barred, constitutionally, not because they may (or may not) be ‘economic’, but because they are completely inequitable! Some taxpayers will benefit (obscenely), others will be subsidizing them!

Our current ‘economic’ predicament is very precarious. Think of it as a rapidly spreading gangrene. You amputate the affected limb fast - else you DIE! Choose quickly, ’cause time is running out to be able to deal with the matter ourselves.

1. Excess debt MUST be crammed down - no ifs, no buts, no exceptions. Yes. I know it will be extremely difficult, but its the only option. Better be 60% poorer than 100% bankrupt!! That’s it. Some choice.

2. Reform the tax structures - in tandem with 1.

3. Pray!

B Peter