To those that have, from those that have not

8 Dec

Baroness Margaret Lenihan

While introducing his budget Minister for Finance Lenihan said in the Dail:

Everybody pays and those who can pay most will pay most.

While he now has the honor of being voted the worst EU Finance Minister for two years in a row, his mendacity knows no bounds.

According to the Irish Times this is how much extra, as a percentage of income, employed individuals and couples on various incomes have to pay through the various deductions after the budget:

For A Single Person

Earning €20,000 – an extra 3.4%

Earning €40,000 – an extra 2.1%

Earning €80,000 – an extra 1.7%

Earning €150,000 – an extra 1.7%

For A Married Couple On One Income

Earning €20,000 – an extra 1.6%

Earning €40,000 – an extra 0.7%

Earning €80,000 – an extra 1.9%

Earning €150,000 – an extra 1.8%

So much for those who can pay most paying most.

The Bigger Picture

There is of course a much bigger picture. The bulk of the €6 billion deficit reduction this year is to be achieved by cuts in public expenditure. That is why the percentages above are as small as they are. Cutting public expenditure greatly favours the rich over the poor because public expenditure is the main vehicle for wealth redistribution in all modern capitalist economies.

From every perspective the budget represents a regressive shift in the taxation system. The measures have overwhelmingly been designed to ensure that, proportionately, the tax burden shifts from the shoulders of the high earner to those of the low earner.

There are some face saving nods in the direction of increasing taxes on the better-off, such as eliminating the PRSI ceiling and reducing the tax deductibility of pension contributions, but, overall, the thrust of the budget was crafted carefully to make sure that higher income earners were protected.

Of course, there were no serious moves to increase tax on property and accumulated wealth, measures which could have been used to ensure that the wealthy pay their fair share – not any longer, alas, for the upkeep of the nation – but, instead, to pay back the speculators abroad who gambled in the Irish property casino and lost but whose gambling debts the Fianna Fail/Green/IMF/ECB coalition has decided must be paid by lower income earners in Ireland.

The across-the-board cutting of child benefit is another slap in the face for the poor. The payment takes no account of income. Those on minimal social welfare get the same as billionaires. However, as everyone knows well, the lower family income is, the more each Euro matters. The loss of €10 a month per child is irrelevant to families with reasonable incomes, let alone to the seriously well-off, but hurts many poor families in a very real way. As for all the other reductions in social welfare, they simply attest to the extent to which the government parties feel no need at all to hide their contempt for the poor.

The reduction in the Taoiseach’s salary from €228,000 to €214,000 amounts to a 6.1% cut. Compare that with the €1 an hour reduction in the minimum wage from €8.65 to €7.65. That is a cut of over 11.5%. Now, it should be clear who is expected to bear the pain of paying back the foreign speculators.

The Fine Gael Reaction

Fine Gael has boasted that it plans to meet the IMF/ECB targets even less through the taxation system than have the present benighted lot. That means they will target the rich even less and instead wreak even more destruction on our already tottering public services. This is no secret. They shout it out at every opportunity. Read the final paragraph of the Fine Gael response to the budget to see their true intent and forget the rest of their waffle which is belied entirely by their tax policy.

Any Alternatives?

So what alternatives could there have been to this regressive tax changes? Figures that could serve to give us all a fairly good estimate were made available through the Irish Times last year. Using projected figures for the year (2009) provided by the Revenue Commissioners , they divided income tax payers  into 6 categories of income, gave the percentage of tax payers in each category, the total combined income of each category and  the total amount of income tax paid by each category.

Eyeballing those figures one is immediately struck forcefully by how unevenly income in Ireland is distributed. This shouldn’t come as a surprise. It has already been well documented.

The bottom category, earning up to €40,000 annually , make up over 60% of all tax payers but  earn only 26% of income. At the other end of the scale, in the top two earning groups, less than 2% of all tax payers garner nearly 14% of all income.  So, 2% have declared incomes that amount to over half what is earned by the combined total of 60% of income tax payers. The table below gives the full picture:

Income Category Number in Category % of Tax Payers % of Total Income
€0-€40,000 1,425,173 60.33 26
€40,001-€60,000 427,591 18.1 19.57
€60,001-€100,000 340,809 14.42 24.17
€101,000-€200,000 135,856 5.75 17.46
€200,001-€1m 31,138 1.31 10.01
€1m + 1,633 0.07 3.68

N.B. A tax payer in the above table may be an individual or a husband and wife being taxed jointly.

Our income tax rates are 20% on the first €36,400 of taxable income and 41% on the remainder. This would lead to the expectation that very high earners, those in the €1m+ category must on average shell out close to 41% of their earnings. A variety of tax deductions ensure they don’t. According to the Irish Times figures, they pay 34%, a little over a third, of their earnings, on average, in income tax. Not surprisingly, the other groups pay less. The €100,001 to €200,000 group pay only 23% of earnings in income tax. Clearly there is plenty of room to tax those on higher earnings without causing them undue hardship. Let’s see what additional contributions we might demand from them to make up a good portion of our €6 billion. Let’s go for around €5 billion. Here is one rough stab at making up close to our target sum.

Income Category Total Earnings Extra % of income to be taken in Income Tax Amount of Extra Income Tax
€0-€40,000 €27,774,175,169 0 0
€40,001-€60,000 €20,906,299,288 2 €418,125,986
€60,001-€100,000 €25,821,190,709 4 1,032,847,628
€101,000-€200,000 €18,654,672,897 8 1,492,373,832
€200,001-€1m €10,700,107,060 12 1,284,012,847
€1m + €3,934,988,175 16 629,598,108
TOTAL EXTRA INCOME TAX €4,856,958,401

So, without asking for  an extra cent from the lowest 60% of tax payers, on the perfectly sensible grounds that they earn too little to afford to pay any more, and by increasing the amount of income paid in tax by the next two categories, by the comparatively small amounts of 2% and 4% respectively, and placing the relatively higher but hardly excessive extra tax burdens of 8%, 12% and 16% of earned income on the top three categories, an extra total of €4.86 billion is collected.

Is this liable to bring hardship to anyone? It hardly seems so. It would mean €1,000 less in the pocket of someone earning €50,000 and €3,200 less per annum for an €80,000 a year income earner.  Certainly, they would feel the loss but it would, at worst, mean the foregoing of some luxuries. They might have to drive the car for a year or two longer before replacing it. Trading up the perfectly adequate house for one in a more prestigious location might not be an option. Or perhaps the slightly outmoded kitchen may have to do without replacing.  The figures look a deal bigger for the remaining groups but, then, they have very, very very, or very very very high incomes. Any loss for this lot is certainly from the luxury zone – indeed one wonders how such people can possible ever spend so much money. At €150,000 the loss would be €12,000, at €500,000 it would be €60,000 while those on €1.5 million would be down the tidy sum of €250,000 but what on earth does anyone need of an extra quarter million when he or she already has 5 times that amount flowing into a bulging bank account?

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