More on Taxes

The debate on taxation policy has heated up in recent days.   Readers might find KPMG’s Income Tax and Social Security Rate Survey 2010 of interest.   It is available for free download here.  The Economist has a piece on the survey, but does not include Ireland in its main comparison figure for the effective tax rate at an income of USD 100,000 (gross).   The effective rate for Ireland is 30.3 percent, which puts us in the middle of the pack (pages 11 & 12). 

Some other tables and figures in the survey show that we should not exaggerate the extent to which Ireland is a low tax country for middle to higher earners.   See the table for the highest rate of income tax (2003-2010) on pages 9 & 10; and also the figure showing the US dollar income at which the highest rate kicks in on page 28.   I’m sure our tax experts will have some quibbles with the calculations.   But it does help to put tax rates for higher earners in a useful comparative context. 

32 replies on “More on Taxes”

@all
Irish people do not feel they are over taxed because they are so over paid.

If you consider 40-60k as a middle income, then you will find that middle income earners do pay a reasonable level of tax (unless they are married).
If you look at most other countries in europe where 25-40k is considered a ‘middle income’ you will see that Ireland’s tax levels are pitiful.

We have to get real and acknowledge that those that remain in employment are still leaving in a hugely overpaid and undertaxed bubble economy.

I have only had time for a quick glance, but does it mention what tax credits are available? I did not see any mention of this as I flicked through it.

For example the tax credit in Ireland is around 3660E. I believe in Germany it is 8000E for 2010.

Again, the data shows that there is certainly no easy ride for the middle class in Ireland.

Even countries with higher nominal tax rates (e.g. NL) often have schemes that lower effective tax rates as long as you’re being a good boy and obeying the “central planning rules” for life, e.g. unless it’s finally changed, mortgage interest deduction in NL is a big deal.

It is worth comparing the chart of effective tax rates (page 28) with my chart at http://www.planware.org/briansblog/resources/taxratechart.pdf

Based on an assumed US$ euro exchange rate of 1.3 and simply reading figures off the chart, Ireland is closest to the German curve for a single-earning married couple but even then:

– German rates are much higher for those on incomes of about €20k
– Rates are fairly similar for those earning 60-100k
– Irish rate are much higher for those earning in excess of 120k.

Not what I expected to see! Begs basic questions about value for money for our taxed euros.

Of course this is not the full picture but disturbing none the less.

@BF I’d never have figured that out Brian thanks so much. I was referring to the 100,000 USD figure in this article and the survey.

@Ahura

Here is the chart you seek:

http://www.planware.org/briansblog/tax rates 2009 – sub 120k.pdf

Note also that tax cases regard dual income married as single cases. This has huge implications for any proposals to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported in Revenue statistics. You can read more about this issue here
http://www.planware.org/briansblog/2009/12/tax-cases-vs-earners.html

An income of, say, €40k shared by two people is not very much IMHO.

FACT AUSTRALIA 90000 UROS Tax 21750 NZ 90000 UROS Tax 25000 UROS IRELAND 90000 UROS Tax 38500

Low tax !!!!!

Tax the under 35ks and Over 90ks appropriately and reduce the burden on the PAYE who work in between paying for the SW PS AND THE ELITES.

@BASQUIAT

Let’s not get into rate of VAT, VRT, annual car tax, fuel excise duties.

I am waiting to see a complete accounting of gross income through to consumption/savings versus total tax take 9indirect as well as direct).

I might try it myself.

Coming from Sweden & living in Germany after having lived in Ireland for 10 years I get questions both from swedes and germans about Ireland and its deficit.

The one and only thing I need to do is explain the amount of taxes that people that earn less than average earnings pay. After that the reply I get: “So the reason why Ireland ihas a deficit is because people don’t have to pay taxes?”

Supposing that newsmedia like to be show indignation on behalf of their readers/consumers, is it conceivable that any bail-out of Ireland will be accompanied by big headlines like “You pay taxes so the Irish don’t have to!”?

@Jesper
Not only Germans but also higher earners in Ireland too. A commonplace assumption in the Irish tax discussion is that higher earners should pay punitive taxes so that ‘normal people’ don’t have to.

@BF accepted thank you. It seems a very difficult subject to get any consensus on which is in some ways surprising given that there’s no shortage of data. My own view is that too few people pay tax (this is only a feature of the last 10 years), high earners pay a disproportionate amount of tax, anything over about 45% acts a disincentive. When people discuss high salaries they also need to factor in the relationship between high house prices and salaries. If your mortgage is say 2K a month you need a high (by international standards) salary else you can’t pay it. Ronan Lyons quiz on his site is very illuminating it clearly spotlights a number of the problems with our current set up some of which are I suspect unique to Ireland.

@JH
Four points:

1. A single PAYE person pays taxes of 16.9% on an income of €30k, If married, the rate falls to 10.8% and if dual income married the rate falls to 3.8%. In judging the latter, bear in mind that their combined incomes are €30k and possiblly one would be earning €20k and the other €10k – not exactly high incomes that could/should be heavily taxed!!!

2. The problem with the high earners is that they do not actually pay the full tax because they have the discretionary incomes to help avoid paying full tax via pension contributions, breaks etc.

3. I did an analysis of tax paid beased on earners rather than tax cases and concluded that people earning between €60,000 to €120,000 (my guesses) could be paying the highest “real” effective rates. It is this group that is very hard hit by high mortgages and probably are the new poor espacially if they are not married or have two earning spouses.

4. According to Revenue’s Statistical Report for 2007, 661,000 tax cases had gross incomes of less than €15,000 a year and, as might be expected, paid minimal taxes totalling €14 million on gross incomes of €4,744 million. If, ignoring the social consequences, their effective tax rate of 0.3% could be increased by 10% to 10.3%, an additional €474 million would be raised. At the other end of the spectrum, 81,000 people had gross incomes in excess of €100,000 a year and paid taxes totalling €4,353 million on gross incomes of €16,065 million. If their effective tax rate of 27% increased by the same 10% to 37%, a total of €1,606 million could be raised. The point I’m making is that, even with best efforts to tax those who don’t pay any tax, the pickings are very poor compared with targeting high earners.

As you say, it is difficult to get concensus.

@Brian F
While I appreciate that you don’t mean it in that way, I must say that your phrase “the pickings are very poor compared with targeting high earners” is reminiscent of a burglar discussing which houses to break into.

@Hugh

Sorry if it caused offence. It is also called market segmentation and targeted marketing – the market for SUVs is very small amongst OAPs but much larger amongst high earners.

I meant it as I said it really in the context of the regularly trotted out statement that “40% of taxpayers don’t pay any tax”. Is this any wonder when about 33% of tax cases have incomes of less than €15 (2007)? The implication is that there could be easy pickings by taxing these low earners.

@Brian F
I took no offence…tried to indicate that in my note. Sorry if it didn’t come across.

However, I guess I should also say that I suspect many people DO mean it exactly that way..

Thanks Brian,

The ‘both spouses working’ looks like a winner. If Joint Assessment was replaced with each spouse being treated as Single, would it create much revenue?

@Ahura

I’ll give two examples. Note that tax comprises income tax, income and health levies and PRSI – with deductions for personal and PRSI credits.

Example 1 – dual income couple (A and B) earning €50k (€32.5K and €17.5k split):

Tax paid = 6176
Tax as % income = 12.4%

If unmarried:

A’s tax paid = 5,826
A’s tax as % income = 17.9%
B’s tax paid = 350
B’s tax as % income = 2%
A+B tax paid = 6,176
A+B tax paid as % income = 12.4%

Example 2 – dual income couple (A and B) earning €100k (€65k and €35k split):

Tax paid = 27,864
Tax as % income = 27.9%

If unmarried:

A’s tax paid = 21,582
A’s tax as % income = 33.2%
B’s tax paid = 6,576
B’s tax as % income = 18.8%
A+B tax paid = 28,158
A+B tax paid as % income = 28.1%

I had never done this simulation before and (like you) thought that it would be better to be married. In fact, the differences between being married or single are minor.

The real differences in tax paid arise betweeen:

(a) married and single income

Married single income with 50k income pays 10212 tax
Single with 50k income pays 13932 tax
Married single income with 100k income pays 35528 tax
Single with 100k income pays 39248 tax

(b) married single and dual income

Married single income with 50k income pays 10212 tax
Married dual income with 50k pays 6176 tax
Married single income with 100k income pays 35528 tax
Married dual income with 100k income pays 27864 tax

Hope I haven’t made a mistake or caused confusion.

Thanks Brian,

My thinking re big ‘savings’ for Dual Incomes is where the second income is low (part-time jobs?).

For example:
Dual Income – 60k and 10k pays 15.5k (22%)
Two Singles – 60k and 10k pays 19.0k (27%)

If there are a large number of low second incomes, a change in the ‘allowance sharing’, could raise a large amount of tax. Yes?

(I should caveat this with: I have little knowledge of tax etc and my tax numbers are taken from a calculator I found on a website.)

The Irish have been sold a pup in relation to the so called low tax economy. Income tax can be lowish however there are a myriad of other taxes (stealth and otherwise) imposed on the working people in this country and yet it amazed me that people generally swallowed the FF mantra of “low tax economy” hook, line and sinker.

The only people who benefited from this “low tax economy” were the very wealthy (think property developers etc) through various tax breaks etc and the MNC’s with the truly low corporate tax rate

Garret FitzGerald take note! We are a low tax economy in one sense only – corporation tax.

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