Don’t you just love it when the Right get all worked up over the injustices that the moneyed-classes must endure in our democracy? Marc Coleman was particularly agitated by those opposed to cutting the top rate of tax:
‘But it’s when you consider that one in 10 taxpayers pays about two-fifth of all income tax paid in the country that these figures hit home . . . the Left wants to exercise its thirst for social justice . . .instead, it begrudges a tax cut to those who live by their own sweat and who give a hugely disproportionate share of income tax revenue. Pathetic, really.’
Ouch, that hurts. I was overwhelmed with guilt. Ashamed that I ever thought progressive taxation was the best way to finance public expenditure. I was about to drop a donation in the charity box at the top of Ailesbury Road when I started to pull down some data on tax and income. And – surprise, surprise -there was more than just a sleight-of-hand being employed with these figures.
First, Mr. Coleman only refers to ‘income tax’. Understandably, when we think of tax we first think of income tax because it’s the one mechanism that regularly takes money off us in a calculable way (does anyone know how much VAT they pay a week?). The problem with this is that income tax only makes up a minor proportion of the total tax and PRSI yield – less than a quarter.
What about the biggest element – indirect taxes (VAT and Excise)? This takes in nearly 50% more than income tax. Are the wealthy getting sluiced on this one, too? Not really. In fact, they get off quite lightly. The Combat Poverty Agency reported that the top 10% income bracket pays about 9.6% of their gross income in indirect taxes. The bottom 10% pays over 20.6%. So in the largest tax category the wealthiest pay less than half of what the poorest pay. Hmmm, some of the sheen is coming off that sweat.
Here’s another category: the 4% social insurance contribution which entitles one to a range of social insurance benefits, including Contributory Old-Age Pensions. Perhaps the wealthy are sweating over this one? Well, not if they take their income through the PAYE system (about 75% do). Someone on €150,000 per year will pay 1% of their gross salary in insurance contributions, while those on the average industrial wage pay more than three times that – 3.2%. So we have two tax elements where we can barely feel the sweat.
But there’s a second problem with Mr. Coleman’s analysis: the wealthy don’t just take income through wages and salaries. They have other means. Take capital gains. It is reasonable to assume that most taxable capital gains income accrues to those on higher incomes (not many low-paid go around buying and selling apartments). The tax rate for this is 20% but PRSI is not levied. What this means is that individuals who take income by capital gains pay a marginal tax rate of 20%. Single people earning just above the national minimum wage pay a marginal tax rate of 26% (a standard rate of 20% + 6% in all PRSI levies).
And inheritances. A lot of us might inherit a little, but the wealthy tend to inherit just that bit more. And just like capital gains, they pay 20% (but only after the first €500,000 which is tax free) and no PRSI. A son or daughter inheriting €1 million will only end up paying about 10% on the entire amount (and probably a lot less with the help of a good tax accountant).
None of this seemed to tally with Mr. Coleman’s prose picture of the hard-pressed rich. But I was desperate to find some set of figures that could put all these things together. Help arrived in the form of the CSO’s EU Survey on Income and Living Conditions (2005). According to the CSO:
- The wealthiest 10% of households paid 21% of their gross income in tax and social insurance contributions.
One-fifth. That doesn’t seem an onerous burden. I know that if my employers, in a fit of unbridled generosity, increased my wage to the top 10% average (€150,000), I’d be able, willing and quite happy to pay that level of tax without breaking into a sweat.
But how does this ‘burden’ compare with the rest of the population? On average, households pay 14% of their income on tax and social insurance contributions. However, when one remembers that this average includes households reliant on social welfare and pension income, we can see that the wealthy don’t pay an inordinate burden compared to the rest of us sweat-less workers.
[In deference to Lorenzo who had me scampering back to my calculator on a previous post, if we use the equivalised income figures rather than household figures, we come up with similar numbers.]
But there’s one more turn of this particular screw. For while, on average, the top 10% paid €591 per week in tax and social insurance contributions, they received €164 in social transfers (child benefit, pensions, PRSI benefits, etc.). So the net contribution they made to the state was €427 per week. Or only 15.6%. This hardly justifies a coup d’état by the affluent classes.
So after suffering the slings and arrows of Mr. Coleman’s outrage, we come to the very heart of his agitation: Mr. Coleman believes that 16% is too high – much too high of a contribution to society. Good grief. If there’s any outrage here it should be that it’s too low – much too low. And none of this counts the benefit accruing, disproportionately accruing, to higher income groups from tax expenditures such pension contributions, mortgage interest and medical insurance relief, etc.
But I do Mr. Coleman a small injustice. I slightly edited (though not changed) his quote regarding the onerous burden the wealthy carry. But he also made another point and this is the full read:
‘If the Left wants to exercise its thirst for social justice it should propose a tax on wealth that is inherited without merit or effort. But it hasn’t got the courage to do that.’
Ouch, again. But this time Mr. Coleman is absolutely correct. And in a future post I hope to take up this issue of courage and tax and unmerited wealth.
In fact, I’ll sweat over it.
Notes on the Front 
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