OPINION:A third rate of tax for the highest earners would generate revenue and aid social cohesion, writes COLM KEENA
BRIAN LENIHAN said last week there would be no new taxes in his forthcoming budget save for a tax on carbon.
While doing so he pointed out that 48 per cent of all income tax is paid by the top 4 per cent of income earners.
“There is no pot of gold that can be raided from the wealthy that can solve our difficulties,” he said.
The implication appears to be that the top income earners in Irish society already contribute so much it would not be fair to ask them to contribute more.
But given the current crisis in the public finances, and the privileged position these people are in compared to the rest of the State’s population, would it not be reasonable, and helpful to social cohesion, to introduce a third rate of income tax that would target such wealth at a time when cuts in social welfare rates are being considered?
The idea has added merit as a high proportion of these very high income earners get all or much of their income from the public purse. Presumably they do so by way of professional fees charged to the State.
Many people believe the rates of fees charged by professionals here are excessive, and a tax that captured so many such persons might have merit for that reason alone.
Lenihan did not break down the 4 per cent figure and it is not possible to extrapolate much from it.
His department expects to get €12 billion from income tax this year, and the 4 per cent of income cases equals 89,291 cases. However, it is not clear what percentage of overall income this 4 per cent might earn.
A table included in the taxation commission’s report gave details from 2006, which is prior to the introduction of income levies. This showed income tax cases earning more than €100,000 paid 40.8 per cent of all income tax.
These income cases earned €16.13 billion of the €76.49 billion that was subjected to income tax in 2006, or 21 per cent.
The figures show that the 0.73 per cent of tax cases that earned more than €200,000, earned 9.85 per cent of all income, or €7.6 billion, and paid €2.5 billion in tax.
Could a third, higher rate of tax aimed at that €7.6 billion of income not bring in another few hundred million?
The Minister for Finance yesterday described the public finances situation as being a “wartime” situation.
The tax cases figures above include the combined incomes of some married couples, but are also after-pension contribution figures, so the true income figure is higher.
On the other hand, the levies introduced recently are a de facto third rate of tax for the better off. However, if they are incorporated into the operating tax bands their “third rate” effect will disappear. Also, the levies catch people who have existing tax-avoidance schemes, something that will not apply if the levies are incorporated into new rates.
The commission on taxation, in its recent report, said the introduction of a third rate of tax “has merit” but should “have regard to the need to keep taxation on labour low and marginal rates competitive”.
It did not specify whether a third rate should apply above the current marginal rate or in between the current standard rate and the marginal rate.
There is an argument against higher income tax rates, particularly for a small, open economy such as Ireland’s which is so dependent on foreign multinational investment and which has a policy aim of attracting “smart economy” innovators to set up shop here.
Yet on the other hand the Government is asking people to stomach pay, welfare rate and service cuts for the greater good at a time when the top 4 per cent of the population, in terms of taxable income, earn such a disproportionate amount of the total income earned.
The Government is obviously swayed by the international investment argument, but once again it is a decision in favour of the greater good which is convenient for the wealthiest in Irish society.
Colm Keena is Public Affairs Correspondent