Abolish income tax and use USC instead, FF delegates told
Middle-income earners pay lowest average tax, rich pay most followed by poorest
Tom Healy, director of the Nevin Economic Reseach Institute, who has suggested that income tax could be abolished and replaced by Universal Social Charge.
Middle-income earners pay the lowest overall average tax contribution, the Fianna Fáil ardfheis has been told.
There was an issue around boosting incomes of all group but “we have a u-shaped taxation curve with the lowest overall average tax contribution from middle income earners”.
“All talk of income tax cuts as distinct from tax reform is a dangerous form of modern day political temptation,” he said.
But he suggested that income tax could be abolished and replaced by the Universal Social Charge.
He called for a national car bumper sticker campaign with the message “I love USC to pay for our public services”.
The analyst said that operated on three or four progressive bands, the charge was “reasonably simple to understand and operate”.
“The beauty of the USC is that it applies to many different kinds of income. It’s not riddled to the same extent as income with all sorts of reliefs and exemptions,” he said.
“In fact you could go far as to say that we could abolish income tax and just have USC organised in three or four progressive bands.”
He said a lot of European countries had three, four or in some cases six income tax bands, to make income tax more progressive.
“Having abolished income tax we could then call the USC income tax and we would then have at least removed a huge range of tax expenditures.” These would still probably amount to €4 or €5 billion which was a very significant amount of money particular in an ongoing process of fiscal adjustment, he said.
During a poorly attended session on “Social Equality for All” with about 30 delegates present, Mr Healy warned against income tax cuts.
He said research by institute colleague Dr Micheál Collins, based on EU data, revealed that middle-income households paid the lowest average tax contribution.
Irish income tax rates are progressive, the rich pay more but it is not as progressive as is often claimed, he said. There is a significant diversion between the marginal rate of typically 52 to 55 per cent at the top end including USC and PRSI and what people actually pay on average, he said. “That difference between rich and poorest isn’t quite as large as is often claimed or understood.”
The top 10 per cent pay most, including indirect taxes such as Vat and excise duties, “but only a little bit more than the second highest contributors who are the bottom 10 per cent”.
Evidence from the OECD was underwhelming about the growth impact of cutting income tax.
He said “removing people from the tax net undermines the goal of excellent public services”.
He warned that “if we go the way of tax cuts, to stimulate economic growth, relieving pressure on families and income, then we have to face the consequences of that in the long-term”.
Mr Healy pointed out that in 2007, a year before the biggest financial and fiscal crisis to hit Ireland in a century, “all political parties in the Oireachtas endorsed a general reduction in tax rates by one means or another.
“Also that year about half the working population had been removed from the tax net and employer contributions to Irish social insurances is one of the lowest in the EU,
“Tax cutting during an ongoing period of fiscal adjustment is highly questionable especially when the Government deficit is well over 3 per cent of GDP.”
He said “the best way to ensure greater social equality is to increase Ireland’s social wage by a proper employer and employee funded social insurance system that will pay for education, health and income during periods of unemployment, learning, sickness or retirement”.
The economist added: “The best way to create employment is through enterprise, public private and voluntary and not excessive reliance on large footloose multinational companies, welcome as they are.”