The Distribution of Income in Ireland

The Department of Finance answered an Oireachtas question about the distribution of tax units (ie individuals or couples filing jointly) during the week with the following information

All income earners for Income Tax Year 2015 (provisional)

Range of Gross Income – € Number of Income Earners
0 to 9,000 368,585
9,001 to 12,000 107,297
12,001 to 15,000 116,836
15,001 to 20,000 213,112
20,001 to 25,000 216,626
25,001 to 30,000 201,085
30,001 to 40,000 324,506
40,001 to 50,000 229,709
50,001 to 60,000 157,805
60,001 to 70,000 107,045
70,001 to 80,000 77,378
80,001 to 100,000 91,301
100,001 to 120,000 47,956
120,001 to 150,000 34,809
150,001 to 200,000 22,512
Over 200,001 24,642
Total 2,341,203
The figures are estimates from the Revenue tax-forecasting model using actual data for the year 2012 adjusted as necessary for income, self-employment and employment trends in the interim. These are, therefore, provisional and may be revised. It should also be noted that a married couple or civil partnership that has elected or has been deemed to have elected for joint assessment is counted as one tax unit.

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41 thoughts on “The Distribution of Income in Ireland”

  1. @ Ernie Ball

    The NERI are talking households and Philip lane is talking tax units. How are ‘households defined’? I’m I right in thinking the average direct tax paid for households seem low is because they’re including children in the average? Otherwise I haven’t heard about some serious tax breaks.

    @ Philip

    Thanks for sharing. Did you pose the question about tax paid per unit? If not I’ll be rattling off an e-mail in due course.

  2. Michael Taft on the study by Michael Collins.

    http://notesonthefront.typepad.com/politicaleconomy/2013/12/remember-all-those-observations-about-how-the-highest-income-groups-pay-almost-all-the-tax-and-how-terrible-it-is-that-begru.html

    And the “note of caution”!

    “This is a significant study and is worth reading in full. The authors state that this is only the first step in deconstructing the progressivity or otherwise of the Irish tax system. Further studies will analyse data based household size, composition (number of children, etc.) and direct / indirect tax per adult rather than household. They also intend to incorporate adjustments in subsequent budgets. When this project is finished it will be a considerable addition to our understanding of the distributional impact of our tax system.

    However, I would urge one note of caution. Taxation is only one side of the redistributive coin. The other side is the range of benefits and public services that taxation finances. The gross income in this study does include social transfers (Child Benefit, pensions, unemployment payments and other payments) as per the CSO survey.”

  3. First – progressively lower tax rates are a design feature in any taxation regime and its use normally reflects the well-appreciated point that the way to match the same burdening of utility for the wealthy person you need to progressively lower the tax rate for those of lesser means.

    Second, you can analyze a revenue SYSTEM as a whole for its proportionality and/or with a view to the overall burden on the wealthy taxpayers compared to those of lesser means (system level progressivity). You need to take care when using the term “progressivity” at the system level, it is a contextually different term when talking about the design of any tax-type or regime that is part of the system. In taxation the term is best applied at the individual tax level, used to discuss its design (using standard concepts of economic welfare (i.e.; utility) in an attempt to effect a fair and equal distribution of the burden of the tax using progressively lower rates).

    This article focuses on Income as the tax base. The broadest tax base also includes Net Worth (a la Piketty’s recommendation and others).

    Unless you look across the basic economics of a person – all people trade off Income, Consumption and/or use of their Net Worth across their life cycle (with many motivations and decisions along the way; of course, we hope that all people get some Net Worth to consider using, when they need it, even before retirement) – you do not have a comprehensive system of revenue and you really need to use the term “progressivity” very carefully in the discussion.

    Always question the use of the term at the system level, if it only talks about the Income tax, or any single tax regime, but ignores all other tax bases and tax types it is likely to be a sign of misleading rhetoric.

    Even Mrs. Thatcher advocated a “poll or head tax” – this type tax is one way to cross over the entire economic equation for a person, letting the taxpayer make the trade off between Income, Consumption and/or any Net Worth when obtaining the money to pay the tax bill.

    Revenue systems should be progressive from a system-level view. Each tax type could use different design features. Any tax regime, like income, should use progressively lower rates for basic economic reasoning. Some use taxes, like for motor fuels, may use Pigou-based design approaches, or progressivity, or flat rate approaches depending on what the tradeoffs to be influenced. And so forth, for the rest of the revenue system.

    Your choice, but eyes open on the taxation side. Knowing you have a revenue system that raises sufficient revenues in a fair and reasoned way you can proceed with spending decisions. The revenue system is fairly stable and it exists before spending policies are determined (the spending side happens in almost an ongoing way). If you don’t have a fair and reasonable revenue system, then in all fairness, you really do need to be cautious on the spending decisions.

  4. @David O’Donnell
    An informative book on Russia from 9th century to 21st century. By Mikhail S Blinnikov a Russian Geography Professor living in the US. A Geography of Russia and Its Neighbours.

  5. Two things are striking here.
    1. A ‘unit’ only needs to get to 80k (and that includes child benefit, part-time spousal earnings) to get into the top 10%. Once you have added up all the senior civil servants, lawyers, academics (SL upwards), doctors, lawyers, dentists, judges etc – how many people from the real private sector are in there?
    2. It doesn’t look as though raising taxes on the ‘units’ who earn more than 200k would raise much. If the average income of those in this group was 250k (a wild guess) then the aggregate income is 6 billion. A new tax rate of 50% on income over 200k would probably raise no more than 300-400 million? The HSE will have overspent that much before you’ve finished counting all the new tax exiles.

  6. @Johnny

    Yes, 300-400 million is small beer and not even worth doing . . . unless you’re passing emergency legislation to raise that much from the public sector (to pay for a tax cut to get you re-elected, you hope). Then it’s an absolutely critical amount of money.

    Of course, who said anything about making 200K the threshold? How about 100K?

    Oh I know: won’t anyone think of the Range Rover dealers?

  7. To quote Michael Taft, “taxation is only one side of the redistributive coin”. The subject of the fiscal incidence – i.e. who benefits and who pays – is the really burning political question. There seems to be remarkably little interest in the topic as a subject of study but perhaps this will change now that the focus of political agitation is shifting from water charges to the Universal Social Charge.

    This study from the US confirms another more recent one in the UK that only the top two quintiles of the income range are net contributors.

    http://taxfoundation.org/article/frequently-asked-questions-about-tax-foundations-fiscal-incidence-study

    It seems that in the case of Ireland, on the basis of the available data, that it is only the top three deciles!

    The calculations raise very difficult problems of definition. However, simple observation suggests that a graph plotted on the two axes of income and net transfers would also be a sharp U shape.

    The general debate will lack any foundation unless there is agreement on the basic principles that (i) all able-bodied adults not in education carry personal responsibility with regard to maintaining themselves economically and (ii) social protection cannot extend beyond what the productive capacity of the economy can afford, acceptance of the first principle being instrumental in promoting that productive capacity.

    There is a remarkable game of of blind man’s buff being played between electorate and politicians on both principles, not only in Ireland but elsewhere in the – relatively – cosseted and wealthy nations of Europe.

  8. Mr Foreigner, “real private sector” as distinct from the unreal one? GPs and some hospital doctors are in the private sector as are most dentists and lawyers. Some are effectively in both. So what?

  9. @Kevin Denny

    Yes. GPs, m’learned friends, hospital doctors, and an array of other professionals live very much in the unreal private sector, whether though monopoly practices or stitching up State support through the back door.

  10. What does a brother have to do to have his comment (from over 4 hours ago) moderated on this blog?

  11. JF,

    where do university professors live, expecially ones who insist on forecasting the future wrongly at every hands turn.

  12. The following table is taken from the 2013 Tax Strategy Report

    Table A4: Estimated Cumulative Burden of Income Tax and USC for 2013
    Gross Earnings % Income Earners 2013 % of the Total Income
    Tax & USC Paid in the
    State in 2013
    > €200,000 1% 19%
    > €100,000 5% 40%
    > €80,000 9% 52%
    > €50,000 22% 77%
    < €50,000 78% 23%

    In other words 1% of taxpayers earn over 200k and pay 19% of income tax and USC receipts, with 59% paid by just 6% of taxpayers. In round numbers 22,000 people pay 19% of the total and 130,000 pay 59%.

  13. @Ernie

    I actually think it wouldn’t be a bad idea to introduce some way of extracting more tax from people at the top – if for no other reason than to send a signal. Income tax is as good a way as any I guess – so I’d be happy to see a 50% top rate. My point is that it won’t raise that much money. There is a lingering sense out there that all our fiscal problems could be solved by taxing the rich.

  14. @Dan

    As an economist (not a humanities lecturer like myself), you should know that telling us the proportion of the tax and USC receipts paid by various tranches of income is meaningless if not accompanied by a further statistic: what percentage of the income each tranche took home. If those earning over 200,000 pay 19% of the income tax but take in 20% of the income, should I be outraged? “Over 200,000” covers quite a wide range, after all. Even if they took 10% of the income and paid 19% of the tax

    Also, focussing only on income tax and USC skews things since VAT is at 23% and the most regressive tax we have.

    The more relevant question is: what is the effective tax rate on the various tranches, including indirect taxes, stealth taxes, VAT, etc.? The NERI report is the only one I know of that goes into this and the picture is not pretty.

    @all

    Nice to see DOCM cite Michael Taft. That’s gotta be a first. I wonder if Karl Marx ever made a statement or point that could be construed as supporting neo-liberal ideology. To Das Kapital, my friend!

  15. Funny how one of the only unabashed leftists on this board is the one who gets moderated. Can’t have any of that, now…

  16. If a society finds it necessary to redistribute a substantial part of income via the taxation system, is that not a sign that something is badly wrong with the distribution of incomes in the first place? After all in an ideal world you get paid in return for making a contribution to society. If there is no connection between what you contribute and what you get paid, or merely a weak connection, then we have bigger problems than just a badly designed designed tax/benefits system. On the other hand if the two are connected, then the case for redistributing the incomes of the well-off is reduced.

  17. @Ernie

    I think everyone is getting moderated – I am anyway.

    Your point about aggregate income is important, not sure if anyone has the answer. My understanding is that the total amount of income declared to the revenue commissioners is around 100 billion a year but I might be wrong about that. That implies (if my guess that the top 1% make about 6 billion in aggregate is correct) that the top 1% earn about 6% of all declared income and pay 19% of all income taxes. That sounds fairly progressive to me. Then again my figures could all be wrong.

    It is also true that there are a lot of consumption taxes and ‘fees/charges’ that are inherently regressive and counter the progressivity of the income tax system.

    These debates about income and tax distribution all end up being sideline noise in the end anyway, why argue over crumbs when the pie is getting bigger? What matters to the bulk of the population is growth, that’s the only thing that raises living standards. Academic salaries in Ireland didn’t go through the roof over the period 1998-2008 because we took from fat cat Peter to give to Professor Paul – they went up because the economy grew. If you want your salary to go up then cheer for pro-growth policies, it’s your only hope. If SF or any of the other Trots get in then good luck!

  18. When Kenny spoke to the American Chamber’s Thanksgiving Day lunch last month on plans for mini-tax cuts in Budget 2016, some of the senior executives in the audience who are earning over €500,000 including share awards and bonuses had reason to be grateful because in addition to the drop in the cut in the top rate, they received an additional 30% income tax exemption on their pay + benefits.

    The Special Assignee Relief Programme (SARP), an income tax relief for individuals assigned or contracted to work in Ireland was introduced in 2012 for overseas employees allowing them to disregard 30% of income between €75,000 (lower threshold) and €500,000 (upper threshold) for income tax purposes. In Budget 2015 the upper threshold was abolished, regardless of the year of arrival, and some restrictions on tax residency were also removed.

    It’s available for both FDI and local companies hiring staff from overseas.

    There is constant pleading from business lobby groups for more tax breaks despite low corp and employer social security taxes.

    The 33% capital gains tax rate is apparently a disincentive to people becoming entrepreneurs because before considering a move some folk stay put as part of their future millions will be confiscated – who pays all the grants etc is another story.

  19. @Johnny

    Strange to hear that you’re also moderated: your comment from 16:05 yesterday was visible to me while my own from 11:55 had still not been approved.

    @all

    Morning Ireland pulling out all the stops to get the CB rules torpedoed this morning. The segment featured dramatic readings of heartfelt letters to the Taoiseach (one of 5 in total that the Taoiseach received, but sure, that’s enough) about how the 20% rule will mean that “we’ll never be able to afford a house.” Of course the writer also broke hearts nationwide when describing how she was outbid for the house of her dreams. Never stopped to ask herself where the money came from that allowed others to outbid her…

    This was followed be a much shorter amount of time given to our own Stephen Kinsella, who did well. But the one sentence that cannot be spoken anywhere in our media remained unspoken: “This will bring down prices.” Even if it were, the Irish public are so conditioned to believe that falling prices are a “bad news” story that the very meaning of that sentence would be adduced as another argument against the proposed rules. Cue a hysterical: “Don’t you realise that this will bring down prices!”

    I believe that there’s about an 80% chance that, come 1 February, there will be no such rules in place. Let the good times roll!

  20. @Ernie
    +1

    Apparently this is all just a big sham being played out between Government, media and CB – 20% was just kite flying – see how the public reacts and then set the new level accordingly.

  21. @ Ernie et al

    The entire sorry saga of how the establishment – politicians, senior civil servants, including academics and, of course, consultants – paid itself so well during the boom years and set an unaffordable benchmark for the entire public sector is available on this link.

    http://www.reviewbody.gov.ie/

    Report 38 (the Buckley Report) is of particular interest as it introduced (Chapter 7) the link between the pay of politicians and public servants and also included hospital consultants (that charmed group which seems to have achieved a kind of cult status in the running of the country).

    The wheels had come off by the time Report 44 was agreed. But the legacy of excessively high rates of pay in the upper reaches has not been entirely corrected and will not be as long as the pernicious link between the assessment of the salaries of those approving the budget (the members of the Dáil) and those charged with expending it continues.

    The distinction between private and public employment also has to be much attenuated. There is no justification for many to be under the umbrella of the latter (including the staff, effectively, of the major banks, practically all of which are in public ownership).

    The bulk of the cuts in expenditure could only, of course, be achieved by two means (i) cutting the salaries of ALL staff on a graduated basis and (ii) the blunt – and, for the moment, continuing instrument of an embargo on recruitment, resulting in distortions that will take years to correct.

    There is IMHO an inchoate awareness among the electorate that the entire tax and spend structure of the state is badly skewed and in need of correction. This would, paradoxically, demand a much higher level of overall government expenditure, on a wider tax foundation, universal access to certain services, notably health and education, reliance on market mechanisms to ensure efficiency across all areas of government expenditures, and the essential confidence of the average taxpayer that his taxes are being well spent.

    There is no real mystery to to this. An entire swathe of countries across Europe, and not just Scandinavia, have achieved this desirable goal to varying degrees. The betting must, however, be that the various interest groups in Ireland will continue to mutually hoodwink one another and the resulting gaps will be plugged by the various “non-profit” actors in a manner which would be unrecognisable elsewhere in the EU.

  22. @Dan McLaughlin
    re: 2013 Tax Strategy Report

    I would be grateful if you would provide a link to the above report. I cannot locate it.

    To be honest, I have some serious doubts about the estimations therein.
    Particularly post USC, they seem far too skewed towards top earners.

    I am also minded that in the initial stages, the P30 monthly revenue returns did not even separate out USC from Income Tax. They do now, but I still wonder if the estimates are badly skewed.
    In addition, we could do with a definition of ‘Gross Income’ for tax purposes, as would this not have been already reduced by pension contributions and various allowances?

  23. @Ernie

    See figures above – my estimate was the top 1% make about 6% of all declared income. That may be a bit low I think. If you do the sums another way you get 8% (see below).

    I think the income tax + USC take is about 16 billion a year. If the top 1% contribute 19% of that you are talking roughly 3 billion. I don’t know what an effective tax rate for the very rich might be – say 40% (given that 49% of all income over 100k goes to income tax + USC). That means that the very rich make a bit more than 8 billion (out of a total of 100 billion declared income) – which would mean my early figure was an underestimate and the top 1% make 8% of all declared income.

    There must be an economist on here who knows the answer and can do better than my back of a matchbox method?

  24. @Dan McLaughlin

    Thanks for link to Tax Strategy Group data.

    I have to respectfully disagree with the figures, tables produced and conclusions of the TSG.
    My principal area of disagreement is the accumulation of the jointly assessed income of couples to arrive at aggregates in terms of “Gross Earning” bands.

    This results in a report that is significantly distorts of the reality of income earners. The data represents ‘tax paying units’ rather than individual income earners, and consequently distorts the income distribution significantly.

    I would have to question the presentation of the data in terms of its functionality for effective economic decision making.
    The fact that the TSG group do point out the above (Note 6, page 21), would not change my observation that the data is simply not suitable or adequate for effective economic decision making.

    Thank you again for linking that data of the TSG.

  25. @Brian Flanagan

    Well done on that. The opening chapter is worth quoting.

    “Oft quoted statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers notwithstanding an established trend towards tax individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third. ”

    In theory, the figures produced by the TSG could be out by a factor of
    2, that is if all working couples reported jointly. The true figure is not out by a factor of 2, but clearly the figures produced are just “plain wrong” as you say.

    It beggars belief that a high-powered TSG could produce such rubbish, and more importantly purport to devise a tax strategy based upon such nonsense.

    I have not studies the charts (currently recuperating), but I urge you to pursue this issue.

  26. @Joseph Ryan

    It is a commonly made error (either by accident or on purpose to suit an agenda). The Irish Times had a short article (20/3/09) about the results of my research. Before publishing, they went though my data in great detail and did external checks. What surprised us was that some key people who were expected to know didn’t realise that the Revenue data related to cases and not to individuals.

  27. In The Interpretation of Dreams, Freud used the term “kettle logic” to refer to a particular kind of self-contradictory exculpatory argument. A person returns a borrowed kettle to a neighbour but the kettle has been damaged. The person who borrowed it argues:

    1) that the kettle was returned undamaged;
    2) that the kettle was already damaged when he borrowed it;
    3) that he never borrowed the kettle.

    Neoliberals on this blog often make similar contradictory arguments about the possibility of increasing taxes on the rich. They claim, often in the same paragraph, that:

    1) we can’t increase taxes on the rich as the rich already pay most of the tax;
    2) we ought not increase taxes on the rich as an increase won’t raise any (or much) money.

    So taxation on the wealthy is held to be both altogether too effective (resulting in a large portion of the exchequer tax take) and altogether ineffective and unable to yield much in the way of additional income.

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