Preparing low and middle income earners for higher income tax

Peter Connell27/03/2009

Peter Connell: In last Fridays’s Irish Times Colm Keena, in an article entitled ‘Income data understate contribution of lower and middle-income earners’, published a table showing income and income tax distribution for Irish earners in 2008. It makes for fascinating reading, particularly in the context of the forthcoming emergency budget and advice emanating from many economists to address the issue of many income earners paying little or no income tax. Such is the apparent generosity of the Irish state, we are told, that a worker on a salary of over €45,000, married with two children, is a net beneficiary of the State. As an aside, and to remind us of happier times – at least for the Progressive Democrats-, Michael McDowell’s election literature made great play of this fact just two short years ago during the 2007 general election campaign.

So, the public discourse on this issue appears to be preparing us for significant increases in income tax for low and middle income earners on April 7th. Sean Ardagh TD, commenting on Irish Economy, is perhaps giving us a preview of what we may expect when he states – ‘The political/ideological desire to have all people with an income paying tax and contributing to the general exchequer coffers has merit. When we apply for services we are entitled to, it is satisfying for us to be able to know and to say that we have paid our taxes when we had an income and what we seek is an entitlement, not a handout.’ Just how much satisfaction workers on €35,000 to €40,000 will derive from paying more income tax after April 7th is difficult to guess.

To return to Colm Kenna’s table, the data presented refutes the often quoted statistic that 50% of all income tax comes from earners with incomes of more than €100,000. The corollary of presenting this statistic as fact would appear to be that the Irish income tax system is highly progressive and that high earners are making more than their fair contribution to the national coffers. However, it turns out that the statistic is based on Revenue cases with many couples being treated as a single case. If the data is disaggregated into individual income earners a different picture emerges with those earning over €100,000 contributing 31% of all income tax. The data also reveals that those earning low to middle income incomes in the range €30,000 to €50,000 contribute 28% of all income tax despite earning only 30% of all taxable income.

This certainly does not sit with the received wisdom that seems to inform much of the debate on taxation leading into the April 7th budget.

Posted in: EconomicsTaxation

Tagged with: Budgettaxation





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