Income Distribution & Tax Take


#1

The revenue publishes an annual “Statistical Report” containing additional analysis of the tax revenue for the year.
The latest available is the 2009 report with data from 2008.
revenue.ie/en/about/publicat … index.html

One of the reports is the 'Income Distribution Statistics"

This shows the number of tax units, their total income and the total income tax they paid for 2008.

I have tried to add PRSI and USC calculations to this based on the current rates. This is a long way from perfect as obviously incomes and other tax rates will have altered massively since then! but the best I can do with the data available.

Link to Google Doc link and summary of data below
docs.google.com/spreadsheet/ccc … c&hl=en_US
https://img42.imageshack.us/img42/7219/docsgooglecom2011922040.png

If you include Income Tax, USC and PRSI the maximum effective rate is 44.2% for those earning over €275,000. There are less than 10k tax units in this category and they pay 13.1% of all taxes on income.

The richest 1.5% (19k people) earn 13% of all income and pay 23.3% of all tax.

Almost one third of the tax units in the state survive on less than €17k.
The top 9% earn one third of the income.

The median tax unit income in 2008 was approximately €26k.


#2

I am always amazed at these tables, bearing mind that they represent tax cases, whereby most dual income married couples are treated as a single case. For instance 4.2% of tax cases had an income over 100K. I thought every second person earned 100k in 2006, or at least pretended that they did.


#3

I made a mistake, the data I actually posted was from 2007.

2008 Data is here
https://img62.imageshack.us/img62/5532/docsgooglecom2011922333.png

Also the original data is based on Taxable Income, there is another table that shows Gross income.

This is probably a fairer measure as it becomes obvious that the richest are able to use far more allowances to reduce their taxable income. The tax rate for those earning over €275k drop their effective tax rate by over 12% and pay a lower effective rate than those earning between €150k and €275k

https://img24.imageshack.us/img24/743/docsgooglecom2011922359.png


#4

What the top tax statistics show in the second table (which is very interesting, thank you) is that as you go further up the income scale, your opportunities for gaming the tax system increase. If you are not willing or able to game the system, you are unduly penalised. Flat taxes with no exemptions would be:
a) more efficient to collect
b) more equitable in overall terms, even if they showed no great increase in income for the state

Are there other upsides? What are the downsides?


#5

There is a reason the tax system is complex and full of loopholes, if it were not the taxation system would bring the country down on it’s own. Friedman made the case for the flat tax, but it’s not as straightforward a proposal as it seems on the surface, no more PRSI, no income level, no mortgage interest relief, no section 23, no claims on medical bills and the various allowances to special interest groups.

And the case against the flat tax -> scribd.com/doc/51096130/Murr … troversies


#6

Playing with the numbers a little, a flat tax rate of 30% with the first €11k (close to social welfare level) tax free would generate the same tax revenue as the existing system of income taxes, USC and PRSI.

A flat 22.5% with no allowances would also generate the same amount.

A lot of be said for the pure simplicity of the system.


#7

Estonia has a flat rate tax on everything at 20% it seams fair and easy to administer. It’s set low enough that the higher earners don’t try to avoid it and the lower earners are not penalised too much (although they clearly pay a lot more than in Ireland). It’s fair as every one expects every one top to bottom to pay it.

Contrast Ireland where everyone from a painter to politician is expected and indeed assumed to be avoiding as much tax as possible.

I woudlnt exclude any one from a flat rate tax. Everyone is a socialist until they pay tax. True socialism is where everyone contributes equally to the common good.

If you earn €1 you should pay tax on it at the same rate as someone earning €1,000,000 IMHO.


#8

While I wouldn’t necessarily be in favour of a single rate flat tax, a two-rate system where everyone pays the low rate and those above a certain level pay the higher rate would seem equitable. Like Terra Incognita, I feel that everyone should pay some tax, however low the rate.


#9

I guess that my gripe is that I pay 56% of my income in tax. I then have to pay someone the guts of 10k to get that down to the 33ish % that is listed in these tables.

What pisses me off is that without knowing anything about my personal financial circumstances (a lot of debt, modest house + boom time mortgage) someone who pays no or litte tax decides that I “can pay and should pay more”

All that I earn comes from working, when I hear statements like this it sounds like they are saying I want you to work more so I don’t have to pay tax.

Baisicly if tax goes up I will by choice cut back on my work and spend more time with my wife and kids rather than pay more tax.

A flat rate tax puts everyone on an equal footing. Everyone knows what everyone is contributing it’s the only fair system. It’s kind of like when proposing every guy is expected to spen one months gross salary on the ring, it hurts the same and puts every guy on an equal footing.


#10

I believe that the 56% tax rate is your marginal rate.

Your effective tax rate is as follows (1-net pay/gross pay).


#11

They don’t decide that you pay more tax. They en-masse vote for parties which promise not to tax them more. when the bill comes at the end of the night someone has to pay it. not everyone can do a runner. They vote democratically but not fairly to pay less tax.


#12

Updated to include the likely distributional effects of VAT

The ESRI published a paper during the summer on the distributional effect of VAT and potential changes to the VAT regime on taxes paid by income decile
esr.ie/vol42_2/06%20Tol%20article_ESRI%20Vol%2042-2.pdf

Not sure what definition of disposal income the ESRI use therefore it may not be correct to simply add the % of VAT spent and the % of income taxes paid to get a total tax % for each income bracket.

However this is the graph showing the % of income that different income brackets spend on VAT.
https://img194.imageshack.us/img194/6626/wwwesrie201194223641.png

As expected the highest income brackets pay far less of their income on VAT that the lower income brackets.

I have tried to manually read off the VAT tax burden for the various income brackets and add them to income taxes to see what the total burden is for each income bracket.

This significantly flattens the tax burden graph

https://img545.imageshack.us/img545/4053/docsgooglecom2011942313.png

https://img32.imageshack.us/img32/2448/docsgooglecom2011942315.png


#13

Dreaded Estate excellent work.

Apologies to everyone if this is a dumb question.

Why do lower income brackets pay more of their disposable income as VAT?


#14

They have less income to dispose of.


#15

Is it that simple?

Surely the basics are all VAT exempt ie

Health and medical services
Children’s clothing
Food
Rent


#16

I’ve just read this PDF esr.ie/vol42_2/06%20Tol%20ar … 2042-2.pdf

Thanks DE it’s fascinating, I guess it is that simple.

I had never considered the effect of indirect taxation.


#17

Actually, I think the figures show lower income groups paying more VAT because they spend proportionally more of their income than higher income groups. Although, Im open to correction on this point.


#18

Since essentials (within a first approximation) aren’t covered by VAT, this seems unlikely.


#19

Yeah, petrol, cigarettes, mobile phone credit, and booze would seem to be relevant here.

At least that’s what I pay most VAT on…

There are a fair number of non-essential grocey items that attract VAT. Have a look at your receipt the next time after you shop.


#20

Hence the FairTax system. Instead of a flat income tax, the only tax is VAT at a higher level. In order to make it progressive, everyone gets a monthly refund of the amount of VAT an average person would pay on a basket of essentials.

In this form it’s a progressive consumption tax. Earn as much as you like tax free, but pay to live a fancy lifestyle.