Policy debates should be accompanied by a numeracy test
Bandying around of taxation figures shows woeful lack of basic arithmetic
Numeracy is a skill that employers say is in short supply. Our behaviour often reveals a woeful lack of understanding of basic arithmetic. Photograph: Getty Images.
Numeracy is a skill that employers say is in short supply. Our behaviour often reveals a woeful lack of understanding of basic arithmetic. I pride myself on a solid grounding in probability and statistics yet I enjoy the odd visit to a casino and have even been known to buy a lottery ticket. These are exercises in utter futility. I justify this lunacy by claiming that I am merely paying to have a bit of fun. But, like a lot of other people, my awareness of probability is swamped by a weird belief that this time I am going to beat the odds.
If we can successfully kid ourselves about basic probability, our ability to ignore simple laws of arithmetic is seemingly infinite. The old cliche about lies and statistics is in operation in daily life. We throw around numbers with gay abandon, aiming to intimidate our opponents, exploiting their lack of numerical skill. Our own inability to add up makes no difference: cite a few numbers with strident certainty and we often spoof our way to winning the argument.
Outside of the ESRI, I wager that the number of people who understand the the difference between GDP and GNP could be counted on the fingers of one hand. When we bandy around our opinions about where our economy currently stands, let alone where it might be going, are we aware of the possibility that GDP/GNP is often badly measured, perhaps dangerously so during the bubble years? All those bank profits that proved illusory, all those ghost estates: they are there in the past growth numbers. Were they real?
Policy debates should be accompanied by a numeracy test. If the person proposing a policy change fails in a basic arithmetic step, ignore everything they say. If they display a fundamental misunderstanding of the numbers they are quoting, ignore the proposal. If the suggestion makes no numerical difference, regard it as an act of retribution, rather than well designed policy.
So, let’s just ask them what they mean. For example, we read recently that Social Justice Ireland (SJI) wants, amongst other things, a cap on total taxation of 45 per cent. I think that means if high earners pay 45 per cent of their income over to the State, Dr Seán Healy will be happy. I make the uncontroversial assumption that he also thinks that this would mean a serious tax rise for all high earners. If so, he is wrong and the recommendations fail at least one test of basic numeracy as well as a lack of understanding of the difference between marginal and average taxation.
As a recent ESRI report made clear, we have one of the most progressive tax systems in the world. That means that people start paying tax at either 52 per cent (PAYE workers)and 55 per cent (self-employed) at very low levels of income. In turn, that means average levels of taxation rise very quickly with only modest increases in income.
On reading the SJI proposals, a good friend of my mine showed me his P60 for 2012. Total deductions came just a whisker short of 50 per cent of his total, very high, income. So, the SJI proposals actually mean a large tax cut for him. He wants to know where he can sign up. When he added all the other taxes he pays he reckons that he is handing at least 60 per cent of his total income to the State.
Surely this level of personal taxation offends some sense of the basic social contract? Whichever side of that debate you are on, you might ponder the possibility, let alone the wisdom, of asking people like my friend for even more of their cash, for more than 60 per cent of their total income.
Another example: Vincent Brown on his popular talk show is fond of intimidating his panel with numbers. He says things like “the data show high earners only pay something like 25 per cent of their income in tax” (apologies if the 25 per cent reference is off slightly, the numbers he quotes do tend to move around).
A tip for his panellists who invariably squirm when he starts throwing numbers at them: ask him if they include PRSI and USC which take another 11 per cent or 14 per cent of income, depending on where you sit. Ask him about how PAYE and self-employed incomes are taxed and how their measurement affects the numbers. Ask him, and people with similar views, what are the limits of fair and efficient taxation? Indeed, is there any ceiling for taxes in their world view?
Kudos to SJI for answering this question, but I’m not sure if they realise they have proposed a big tax cut for very high earners. If policy proposers can’t deal with basic questions like these, ignore them.