Lower tax rates? what could go wrong...

[jenniwrenn]

Not a personal question, more of an economic theory/policy/politics/legal question.

We have USC/PRSI and then income tax, ...

.. in some kind of dreamland, what would happen if we (Ireland) got rid of USC/PRSI altogether, and funded whatever those expenses were fr taxes.
And then retailored the tax rates to be more progressive and incentivised personal saving and investing.

The combined income tax ladder could look something like:

• 0% to 20k
• 20% to 40k
• 30% to 70k
• 40% to 140k
• 50% to 250k
• 55% to 350k
• 60% to 500k
• 65% for 500k+

And then, for the second part of the equation - encouraging personal saving and investing...

• investments/disposal capital gains on ETFs gets taxed same as stocks
• capital gains tax on stocks ETFs 25%
• capital gains tax on stocks/ETFs waived down to 0% for long term investors (e.g. holding shares for 5y+)
• merge occupational/PRSA income tax deferral schemes .. make them just regular bank accounts with an IBAN and with tax restrictions/implications.. e.g. max amount you can funnel into that account to defer per year.
• make lottery gains subject to income tax
• remove peanuts deductibles.
• make the above %-es and limits automatically adjusted for inflation, every year, or until new legislation.

I've been looking at some of the tax income breakdowns and something like 20%+ of income tax income, comes from people reporting 275k+ of taxable income, which is 0.75% of people... I don't know how the distribution of income looks like among those 2500 people.

97% of people who make up 80% of income would get a tax break when this is introduced - which in practice would be a benefit shared between employees and employers (cheaper labour - less money for same take home pay), which long-term would lead to more people wanting to come to work and pay taxes in Ireland leading to e.g. increase in population and increase in market size for various things, various industries becoming more efficient to run and so on.

How do you think all of this would work out?

 

[kennyjoede]

@jenniwrenn The bottom line with any tax change is
- who do you want to pay less
- who do you want to pay more, to cover it

 

[jimkarri]

@kennyjoede Or even better, how about we reduce spending on useless shite? Just because we spend X now doesn't mean we have to going forward.

Already Irish tax payers are being shafted with extremely high taxes on their salaries and then multiple taxes on their already taxed salary (road tax, fuel tax, LPT, VAT, TV licence, the list goes on). To top it off we have shite for public services. Healthcare is shit, public housing is shit and not available for those paying said taxes and again the list goes on of shit services...

 

[kennyjoede]

@jimkarri I hear you and agree.

So the solution is more efficient government not tax redistribution.

 

[resjudicata]

@jimkarri And you think we could fix the shit services by reducing expenditures? Or just give up on public healthcare and welfare

 

[roman959]

@resjudicata The first thing to do is to have an open discussion about what the scope for the government is (the government isn’t always the best solution to every issue).

Only once this is agreed, then comes the time to discuss what a reasonable level of funding is for what’s in scope, and how the money would be best utilised to deliver those services.

Without that prerequisite, there is no guarantee that taxes are being spent on what the public expects from the government.

 

[resjudicata]

@roman959 I think that's called the democratic political process and in Ireland it actually works for the most part. What we have now is already the result of compromise between all social parts and various reality constraints

 

[jimkarri]

@resjudicata I definitely wouldn't advocate for eliminating them but just throwing more money at the problem isn't working. We already spend a large amount per capita for healthcare when compared to other European countries.
Welfare is another story, but I would like a restructuring of that but that's my own personal political opinion.

 

[resjudicata]

@jimkarri We spend a large amount in nominal terms but not as a fraction of GDP. Everything is expensive in Ireland, including but not limited to healthcare workers wages and there's no way around that

 

[jenniwrenn]

@kennyjoede In the long run, I'd like everyone to pay less, but I'd like the economy to grow, and number of people paying tax to grow, and per capita government expenditures to be lower on average... e.g. "more efficiency through scale".

In the short term, in my proposal of bands above folks having 500k+ per year, should pay more (or find ways to pay less). Most others should pay less, since we need more "regular folk" working in Ireland.

 

[kennyjoede]

@jenniwrenn One big problem is we have people living 30+ years and their healthcare and pension costs are huge and getting bigger. Someone has to pick up the tab.

 

[aldrichenko]

@kennyjoede I don't think 31 year olds are the cause of the pension costs

 

[kennyjoede]

@aldrichenko No I mean 30 years past retirement…!

 

[kpodekon]

@jenniwrenn Mmmm, tax cuts funded by growing the economy was tried pretty recently. It resulted in the proposing prime minster getting out lasted by a lettuce and the countries economy getting hammered for about an estimated 30bn. Accountants and bankers tend not to lend based on things you'd like to happen.

 

[mikek84]

@jenniwrenn No one should be paying any more than 30% tax. It's up to the government to spend that money wisely. We do not provide enough quality services to justify the current tax levels on higher earners. I'd love to know how much of our tax is wasted by each government department.

 

[jenniwrenn]

@mikek84 my thinking was that e.g. paying 2% or 7% extra for folks in the highest 1-2% brackets relative to total income, (whatever the actual percentage amount) is not something that would significantly impact the day to day quality of life of those folks directly.

But I think it would represent a substantial boost on overall tax revenue e.g. extra 10% on overall income revenue.

Given that 80% of the population is responsible for 20% of the income tax revenue, this 10% could essentially halve the amount of taxes for the "middle/lower class"... and would become more proportional with quality/quantity of service (which is already not proportional across incomes)

 

[garwo123]

@jenniwrenn Agree on the USC piece (was supposed to be temporary anyway), PRSI in theory has a benefit from being separately identifiable as it ties to social welfare entitlements and also can be ring fenced for specific government purposes.

The 8 tax bands proposed adds so much complexity and administration, goes against the principle of Efficiency. Ireland already has a very progressive income tax system, maybe too progressive but I don't imagine any country in the world has that many income tax bands.

Our combined household savings are massively increasing and our pension contribution tax benefits are very generous, there are opportunities for people there already, albeit the cost of living crisis impacts this (but would impact any of the above proposals).

Possibly some improvement on the capital side, but there are drawbacks to incentivising capital investment if it becomes tied up in something which does not contribute to productivity and economic growth i.e. tax breaks and incentives need to be carefully thought out for influencing long term aims rather than being used for people to horde money and build up assets/savings in non productive use.

I also don't see any significant issue with CAT rules. CAT is there to ensure that recipients do not receive so much in inheritance (or gifts) that they are no longer required to work and contribute to society. Far better for sufficient planning and gifting of money early (use the gift exemption) to allow those funds to be spent by recipients and contribute to society (home improvement, holidays, retail spend etc) that create jobs and spread wealth rather than let the wealth build up as assets/savings for elderly parents to then be distributed as a lump sum.

There are opportunities for improvement of course, but there is a good base to work from.

(Obviously lots of corporation tax, vat, stamp duty conversations to be had too!)

 

[evaline]

@jenniwrenn With a tax ladder like that you'll quickly find that people with very high incomes are very mobile and they'll just move out of the country.

 

[jenniwrenn]

@evaline I've been thinking about that, e.g. who are these people with 5M+ of taxable income... I'm thinking CEOs / VPs / ... who are here for work or something.. "stars" of some kjnd...

.. but I can't think of them moving, they can probably negotiate being paid more or differently... or companies paying them would just pay them differently.

It'd be interesting to look into.

I'm thinking if you're an owner of a company, you probably don't just pay yourself X million in salary, you probably have enough money to hire an accountant and restructure your taxes to only pay taxes on what you want to spend when you want to spend (offshore family office or some such thing).

 

[jdsenn]

@jenniwrenn

to only pay taxes on what you want to spend when you want to spend

If you could do that everyone would be doing it!