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RTÉ reports:

Research by Dr Michael Collins of the Nevin Economic Research Institute finds the poorest 10% pay just over 30% of their income in taxes.This is mostly in the form of indirect taxes levied on the things they spend money on. Meanwhile, the top 10% spend 29.5% of their income on tax – mostly in the form of direct income tax. The combined tax burden produces a u-shaped graph, with the bottom and top of the income distribution paying most, and those on lower middle incomes paying least.

There you go, now.

Read Dr Collins’ paper in full here

New research says poorer people paying more tax (RTÉ)

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39 thoughts on “The Poor Pay

  1. Slugger

    Not to go all right-wing here, but I’m sure that the poorest 10% are funded largely by the PRSI contributions of those of us in the middle of the bell-curve.

    1. Padi

      If I heard their spokesperson correctly on the radio this morning, the lowest 10% they refer to here are largely social welfare recipients. So they pay no income tax put pay a higher proportion of their ‘income’ in other indirect taxes (VAT etc) as compared to someone on an actual and higher income. Surely this is common sense, if you are on social welfare you are most likely to spend all of this money whereas someone who has higher income may be in a position to save some of their income. What exactly do they want here, a lower VAT rate for the unemployed, higher social welfare payments so these people can save and develop wealth and thus reduce their effective tax rate? Seems like a totally skewed result fitting the bias of their agenda.

      The simple reality is we have an extremely progressive tax system (too progressive in my view) where those in the 40-150k range pay the vast majority of the countries taxes.

      1. Unpredictor

        @Slugger, @Padi It is a little more complicated. The bottom decile spend about twice as much as their income i.e. they are running down their savings. Hence, relative to their income, indirect taxes hit them much more. By contrast the top docile save about 25% of their disposable income and hence avoid indirect taxes on that amount and pay proportionately less indirect taxes.

        But in order to run down savings, the savings have to be created at some point (whether by saving their income, inheriting it or winning the lotto, we can’t tell). So as the report mentions (but pretty much dismisses) that there is a time dimension to this. It argues that our mix of direct and indirect taxes is regressive – which it is. But over time the same people that ‘avoid’ indirect taxes by saving eventually get hit by them when they spend their savings. So the mix of taxes is not quite as regressive as it looks.

      2. SOMK

        It’s not that complicated, it’s making the point that poor people pay a higher percentage of their income on tax.

        Let’s say very simply what a government should want to do is maximise economic activity. From that point of view it makes sense as a general principle to tax the wealthy and not the poor.

        You don’t tax poor people because a) poor people spend money quickly anyway and b) it disminishes the effectiveness of the welfare you give them if it is heavily taxed.

        You tax rich people because a) they can bare it and b) they spend money slowly, because they’ve more of it, they’re more likely to save/hoard (good in a booming economy that’s over heating, bad in a stagnant economy with flat lining consumer demand like ours). Any money you collect in taxes you spend in the economy, which circulates back into people’s pockets.

        So on those terms, where you want to merely maximise economic activity in the economy, having a system where the poor pay proportionally more doesn’t make any sense.

        What do you want to do about it?

        Well according to a depressing majority of the comments here the solution to the issue of poor paying proportionally more of their income on tax, is to tax the rich less…

        For everyone else there’s a host of solutions/takeaway, from considering implementing basic income, to introducing a more graded progressive tax system (more of a gradient, less reliance on tax breaks etc), to when budget comes around again looking more closely on which levers are opened and which are closed and having a general awareness of what reality is, as opposed to the spin.

        Ps. People over 32k a year don’t pay 52% in tax, that’s the maximum rate adding income (41%) USC (7%) and PRSI (an insurance not a tax BTW and the lowest in Europe, 4%), but no one pays that, a single person on 37,500 will pay a maximum of 23.2%, composed of income tax (13.8%), USC (7%) and PRSI (4%). Source: http://www.tasc.ie/download/pdf/tasc_how_much_tax_do_people_pay_on_their_incomes.pdf

        1. Unpredictor

          “It’s not that complicated, it’s making the point that poor people pay a higher percentage of their income on tax.”

          And that point is correct in any given year but it is not the only aspect to this. The (not contradictory) point I was making is that over a lifetime people move between deciles and from being savers to spending their savings and that affects the % of their income they pay in tax. That must dampen down some of the regressivity of the mix of taxes we have over time, but still leaves it overall regressive. So it is, like I said, a little more complicated.

  2. Twunt

    Do we know the make-up of the income of the poorest 10%?

    And how much income tax do they pay on this income?

  3. Daniel

    I’d like to see actual numbers. With all the tax credits etc I’d like to see how much someone on let’s say €350 pays in tax, if at all? Also how much they get back in medical cards and other state benefits.

  4. Ed

    No surprise there. We need higher income taxes on those individuals who earn over 50,000 euro a year. We need to majorly increase inheritance tax. We need to majorly reduce the amount of time tax exiles (Dinny O’Brien, etc.) are allowed to spend in this country.

        1. Ed

          You weren’t audacious, any one can set up a business if they’re so inclined and have access to capital. I think people like you, however, should have recourse to the dole if your business hits the rocks. I think it’s unfair that sole traders can’t access it.

    1. Spaghetti Hoop

      As an aside point, do you not think that continuously taxing professions which offer >€50k thwarts ambition? It seems to be dished out as a penalty.

      1. Ed

        No, it doesn’t twart ambition. People whose primary ambition is to make money will always have that ambition.

      2. Padi

        My personal experience is yes, friends have not moved on from jobs where they are on 60k to a job for say 70k as they see it as having little impact on their pocket and not worth the hassle of joining a new place for. Personally I would look at the role of the 70k job and see if it is a stepping stone to greater things, if that is what you wanted. So tax may not thwart the ambition of the ambitious, but possible does for the less ambitious…if that makes any sense (I need coffee).

        1. Ed

          I get you. But, if they’re comfortable at that level, then there’s no reason not to tax them more.

          1. Happy Molloy

            tax them because they’re comfortable? for the purposes of making those who don’t work comfortable. Ah yes, the Richie Boyd Barrett approach

          2. Happy Molloy

            not as hard. and I say that as one who formerly thought management and higher paid folk do damn all, until I became one of them.
            you don’t earn more money, in the vast vast majority of cases, without working a hell of a lot harder and carrying the burden of responsibility around with you daily

          3. Spartacus

            I can only conclude that you have very limited life experience and a very simplistic world view. I can think of many extremely hard working people of my acquaintance who are poorly paid.

          4. Happy Molloy

            am sure you do, I worked incredibly hard for low money. didn’t bring work home with me though, was able to leave work at the door as there is little responsibility with low paid jobs

    2. Jock

      We already have penal tax rates for those people. So much so that I just fupped off and left this kip for a better life. Enjoy your feral kids and freeloading slippered pensioners boys!

      1. Ed

        Judging by your comments, in leaving Ireland, you’ve raised the intelligence of the country. Thanks.

        1. Clampers Outside!

          And when you leave, it’ll double?

          It must do, I mean… “People over 50,000 should pay more than 52 per cent.” We already have the lowest required entry to our highest tax brackets compared to the rest of Europe. To enter the higher tax brackets in other European countries you have to earn a lot more.

          But 52% on €50k…..

          FFS… you’re some gimp boyo. You say €50k like it was pulled out of your arse. Like it were some HUGE number. It’s fupp all ya gobsh*te…. And 52%…. Holy sweet suffering Jesus!

  5. John

    are the nevin institute some union funded nonsense with similar non partisan reporting levels to the iona institute.

    1. rosie

      yes they are under the ICTU umbrella and AFAIK with a similar ideology.
      this probably should have been mentioned in the post…

  6. Outta me Bento Box

    So spending higher proportion of your income (from your Social Welfare) on tobacco and alcohol which attract high rates of tax make you some kind of Flag Saluting Tax Paying Citizen now?

  7. El Cuno

    Income tax, VAT and excise etc are all pretty much maxed out.

    How about a tax on gambling?

    How about getting multinationals to actually pay 12.5% corporate tax (instead of the 2% that some of them do)?

  8. Outta me Bento Box

    http://www.thepropertypin.com/viewtopic.php?f=4&t=63133&p=788297#p788297
    The problem with tendentious nonsense like this is that its takes an age to analyse and refute the messages being advanced and the conclusions being reached.

    Even the headline message about the lower paid paying a greater proportion of their overall is not even an argument. It is made as an observation that the listener is meant to convert into an argument about the lower paid subsidising the better-off.

    The Nevin Institute paper (http://www.nerinstitute.net/download/pd … i_wp18.pdf )
    derives most of its information from the CSO Household Budget Survey published in 2012 and based on survey information collected in 2009 and 2010, between 4 and 5 years ago:

    • Central Statistics Office Household Budget Survey 2009/10 – Volume 1 – http://www.cso.ie/en/media/csoie/releas … 0first.pdf

    • Central Statistics Office Household Budget Survey 2009/10 – Volume 2 – http://www.cso.ie/en/releasesandpublica … 10volume2/

    Taxation

    We all pay lots of tax: direct, indirect and other charges and levies. Direct taxes include income tax, USC and PRSI. Indirect taxes include VAT and excise duty.

    Other taxes and charges include property tax, television licence, VRT, road tax, waste charge and many others

    These all have different rates depending on factors such as income, the price of the product and VAT. In the case of petrol, diesel, alcohol and tobacco, excise duty is first applied and then VAT is applied. Excise duty is a flat rate so is proportionally less on more expensive items such as wine and spirits.

    Note that the Nevin Institute does not take into account these other charges and levies. It also does not take into account reliefs and derogations that the lower-paid get from some of these other charges and levies.

    The real figure is that the lowest 10% pay 14.66% of their expenditure in indirect taxes. The same group pays 0.3% of their income in income tax and USC. But their taxable income is only half their actual income. So their tax burden is around 14.81%.

    The tax burden of the top 10% is 34.49% – 28.16% in income tax, USC and PRSI and 6.33%% in indirect taxes.

    Summary

    So, in summary, the more obvious errors in the Nevin Institute report are:

    • Based indirect taxation amount on gross income rather than expenditure or disposable income, which for their headline lowest 10% would reduce the proportion of indirect taxes from 27.37% to 14.66%, and the proportion of net income paid in tax is around 14.81%.is, much less dramatic figures

    • Based the same figure for the highest 10% on the same incorrect number and so misrepresented the actual proportion of income spent in taxes which is actually 34.49% (based on their income numbers)

    • Did not cross-reference their income numbers with the more recent Revenue’s income distribution statistics. If they used the average income value for the top 10% from the Revenue of €130,418, the proportion of income spent in indirect taxes would be 7.52% and raise the total tax burden to 35.68%

    • Used Household Budget Survey published in 2012 and based on survey information collected in 2009 and 2010, between 4 and 5 years ago that did not include recent levies and charges that would affect the higher paid more and from which the lower paid would have greater reliefs and derogations. This would have the effect of showing the higher paid a greater proportion of income in taxes and the lower paid a lower proportion

    • Did not sanity-check their indirect tax numbers to validate their reasonableness

    This so-called report really is just offensive, tendentious, superficial, badly written lying piss-poor pseudo-analysis.

    The actual truth is that we are an over-taxed society, except at the low-end. Sucessive Fianna Fail governments extended reliefs and tax bands to effectively remove a substantial portion of society from paying income tax.

    The fact that these people have the ears of the Labour Party in their policy making and that these clearly flawed numbers will be quoted to justify faulty economic policies is odious.

    1. Spartacus

      I am far from an economist, but even I can shoot several holes in that pile of utter bollox. Just to clarify (before I waste any energy on you) – are you also ChickenParmentier, or did you just forget to credit him/her with the massive cut-and-paste above?

      1. Outta me Bento Box

        Apologies to ChickenParmentier – I neglected to credit him ; the Copy/Paste didn’t get all the way through.

        But go ahead and try to discredit it – or you can just admit the NERI is a crock

        1. Spartacus

          Thought so. On reflection, I withdraw my earlier offer. I have better plans for my evening, so it would be a shame to waste it on doing your thinking for you.

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