At the moment, there are only two basic income tax bands in Ireland: 20% and 40%, and the jump to 40% happens quite early on, around about the point where you earn 35k-40k a year, depending on your circumstances. Unfortunately, if you live in Fingal, 35k no longer counts as a lot of money. Indeed, such an annual wage could perhaps better be termed ‘barely adequate’.
Perhaps unsurprisingly, in Fuller Democracy 2016, 94% of participants in Fingal voted in favour of a more gradual increase in income tax. For this to remain budget neutral, the top rate of income tax would need to be slightly higher, but a taxpayer would also need to make significantly more money to be affected by it. Any person earning less than ca. 140k a year would see their taxes decrease or stay the same. As a rough starting point, I would suggest six different tax brackets (based on a single person’s income; the tax advantages for married couples/single parent families would remain):
- 20% income tax up to 35k
- 35% tax on 35-50k
- 38% on 50-75k
- 40% on 75-100k
- 45% over 100k
- 48% over 180k
It is important to remember that anyone earning over 100k has now paid less tax on everything up until that point, so they would have to earn approximately 140k for their total tax bill to increase at a 45% top tax rate.
It should be noted that these are very rough figures, and that they only serve as a starting point for income tax reform. The only truly important points are that the tax burden needs to go slightly down for people on the full range of middle incomes and slightly up for people on truly high incomes; and that these increases need to come about more gradually. The exact numbers could (and should) be optimized over time, based on the national income profile and tax take.
Beyond the fact that a more gradual increase in taxes would be a boon to struggling families, such a policy would help to get money circulating in the economy again. People on middle incomes are more likely than very wealthy people to spend their saved tax Euros and to spend them in Ireland. Additionally, many people are on precarious incomes and earn large portions of their income through unpredictable bonuses and other incentives. More gradual tax rates can give people a bit of a boost through times when their income dips.
I have raised this point with several TDs, as well as with Minister Donohoe (Minister for Finance and Public Expenditure and Reform) and he promised to take it into consideration in the next budget. However, I do feel that it is ultimately up to me to spearhead this initiative.
It is very important that all reforms are the product of joined up thinking, and it is worth noting that this one comes with some related policies and considerations that would be necessary for it to reach its full potential:
- Income is no longer the prime determinant of wealth. We need to recognize that someone earning 40k a year and living in a home they bought 25 years ago is in a much different position than someone who is 25 today, earning 40k a year and unable to buy a house due to sky-high rents, car insurance costs, etc. And this person, again, is in a completely different situation to someone who is 25 years old and just inherited their grandmother’s million Euro house in South Dublin.This means that people can be in the same income class, yet inhabit completely different social classes with completely different lifestyles. So, while income tax reform is important, it is also important to look at other ways to bring wealth distribution back into an acceptable and sustainable spectrum, for example, via increasing inheritance tax (supported by 63% of Fingal residents in Fuller Democracy 2016), and introducing rent caps and basic social income. Income tax reform is important, but for it to truly be effective some of these other policies need to be implemented as well.
- The super-rich are the root of our economic woes, not the upper middle-class. If 100k or 150k was the top amount anyone was earning in Ireland our distribution issues would be fairly minimal. This is why I have sought with my income tax reforms to try to prevent taxes rising for as many upper middle class earners as possible.
- Irish people are paying too much tax for the services they are getting. We are basically trapped in a system of double payment for everything, as our tax Euros seem to have a hard time transforming themselves into education services, health care, roads, childcare or anything else. To the best of my knowledge, people would prefer better social services to decreased taxes. This is why my income tax adjustments are aimed at being budget neutral, which means they need to be implemented incrementally – possibly by just one percentage point each year. However, these adjustments, however minor they may at first seem, are still an important component of rebuilding the middle class and thus kicking the economy back into production mode. Many hands make light work, and the more people who are earning and paying tax, the less the burden on each earner is, ultimately allowing taxes to come down for everyone. Tax relief on the very wealthy will not get more people working; tax relief on the middle class is necessary for that, as they drive domestic consumption. This should create a virtuous cycle of more efficient service provision and ultimately increase our ability to lower the tax burden still further.