‘High tax country’ debate is increasingly juvenile

Pre-budget hysteria rises inexorably year by year. And with it comes a fall in the quality of proper analysis. The debate has become increasingly juvenile; I think we have reached a new milestone in terms of the extent to which partisan, naked lobbying on behalf of narrow, sectional, interests, dominates our discussion.

There are many and various aspects to all of this. But it is best encapsulated by the division over whether or not Ireland is a ‘high tax country’. The infantile nature of the question says it all.

Data is used selectively and is often tortured until the ‘right’ answer emerges. The true complexity of the underlying issues are rarely addressed: lobbyists on behalf of people who don’t pay much tax (and, correspondingly, are the biggest beneficiaries of other people’s taxes) always, without exception, claim that we are a nation of low tax payers; this is enough to prove the logical corollary that existing taxpayers need to pay more.

Unsurprisingly, taxpayers produce lots of data that show the reverse: 40 per cent of earners don’t pay any tax at all (that’s the low tax country bit that everyone agrees on) 45 per cent of all income tax collected is from the higher-rate taxpayer.

This is where we get our first huge data distortion: in one corner we have organisations such as the Think-tank for Action on Social Change (Tasc) and the Nevin Economic Research Institute (Neri), claiming that only 17 per cent of taxpayers would benefit from a cut in the top rate of tax. In the other corner, Ibec argues that 50 per cent of taxpayers would gain.

This is not a minor quibble: it speaks to the partisan nature of the debate. It’s not about subtleties or minor differences in data definitions. It really is a classic example of lies, damned lies and statistics.

Believe it or not, it turns on what we mean by ‘taxpayer’. Simple folk might think that this should be uncontroversial: it means those who pay tax. That’s what IBEC thinks, for example. Marginal rate But trade-union sponsored think-tanks argue that 825,707 people who don’t pay any tax at all should be counted as taxpayers. So, we know that 354,931 people, according to the Revenue Commissioners’ most recent statistical report, paid tax at the highest marginal rate (Ibec thinks this is a low estimate).

Whether that’s 17 per cent, 50 per cent or 8 per cent depends on what point you trying to prove.

It could be 8 per cent if you thought the right basis for comparison was the number of higher rate taxpayers as a proportion of Ireland’s total population. It is a small enough number to argue that higher rate taxpayers can’t really matter at all. I am waiting for this to used

Earlier this week, TASC produced a report which made a lot of interesting claims; some were not even wrong. For example, no leaving cert qualified economist would ever claim that the ‘marginal rate [OF TAX IS] irrelevant.

They also argued, with a chart to back it up, that ‘the highest that anyone pays in income tax is 30 per cent’: even those with incomes of €2,000,000 pay no more than 30 per cent according to their data. IBEC produced a very similar chart, one showing that anyone with an income of €200,000 (that’s 90 per cent less than €2,000,000) pays an average rate of tax of close to 49 per cent. As Mark Knopfler once famously said, when two men say they’re Jesus, one of them must be wrong.

It is an egregious provocation to argue that USC and PRSI are not income taxes. As most schoolchildren know, these immediately add up to 11 percentage points to most Irish workers tax bills. That accounts for part of the difference between the two camps. The rest of the gap is to do with peculiar and mostly incorrect definitions of taxable income. This is arcane accounting but very relevant: we have to get into some of this if we are to move the debate beyond a dialogue of the deaf.

If a person’s income is mostly rents from buy-to-let properties, his taxable income is gross rents less allowable interest and other capital deductions. Those allowances might actually mean he pays no tax at all: his legitimate outgoings mean that he is running his business at a loss. Is he taxpayer? Obviously not. But if we claim that he is, the gross rents figure enters the taxable income calculations and that depresses the average rate of tax that we think the country is being charged. I said it was arcane.

A simple scan of the OECD tax database backs IBEC’s claims, particularly the one about average tax rates getting to 49 per cent very quickly. The OECD has said many times and in many different ways that Ireland is an outlier when it comes to taxation of average incomes: we are low by international standards. The OECD also confirms that we have one of the most progressive tax and benefits systems: we get to the (relatively high) top rate of tax much quicker that virtually anybody else.

The OECD also confirms that we have one of the most redistributive systems in the world. And the OECD is the closest we have to a non-partisan, sensible, observer.