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What Social Justice Ireland really said about income tax- 2014 Budget
There has been some confusion and misrepresentation of Social Justice Ireland’s position on income tax in the media.
Here's the real story. As part of its Policy Briefing on ‘Budget Choices 2014’ Social Justice Ireland has made a number of recommendations on income taxation. These recommendations are:
1. An increase of €5 per week in the PAYE tax credit
The increase of the PAYE tax credit by €5 per week (€260 per annum) will benefit all workers, especially those on low and middle incomes. The cash benefit is the same for everyone but the increase is proportionately larger for lower paid employees. Using the tax credit system ensures that resources are distributed in a progressive manner.
2. The introduction of Refundable Tax Credits
To maximise the capacity of tax credits to tackle the ‘working poor’ issue we propose that the two main tax credits be made refundable. This would make Ireland’s tax system fairer, address part of the working poor problem and improve the living standards of a substantial number of people in Ireland. Our detailed study on this issue in 2010, ’Building a Fairer Tax System: The Working Poor and the Cost of Refundable Tax Credits’, showed that 113,000 low-income people with jobs would benefit in an efficient and cost effective manner from making these tax credits refundable. The proposal only applies to the unused portions of the Personal and PAYE tax credits. The cost of refunding unused tax credits to individuals satisfying all of the criteria outlined in the study is €140 million.
3. The top rate of USC to be applied to all income earned over €100,000 per annum
Self-employed earners currently face a tax rate of 55% on all income that they earn in excess of €100,000 - this is calculated as 41% income tax + 7% USC + 4% PRSI + an additional 3% USC levy. All other individuals with income above €100,000 face a tax rate of 52% on all their income in excess of €100,000 as they are not subject to the additional 3% USC levy. It should be noted however that the overall effective tax rate faced by both these groups is well below these marginal figures at around 40-42% of earnings.
Social Justice Ireland proposes that in Budget 2014 the additional 3% USC levy apply to all income in excess of €100,000 irrespective of its source. This would ensure that self-employed earners are treated in the same manner as all others in the taxation system. The introduction of a maximum effective income tax rate of 45% would ensure that the additional 3% levy would not push anyone’s total income tax (i.e. income tax + PRSI + Universal Social Charge) above 45% of their total income.
4. A maximum effective income tax rate of 45%
Social Justice Ireland proposes that Budget 2014 should introduce a maximum effective tax rate of 45%. The effective tax rate is the percentage of one’s total income paid in tax (income tax + USC + PRSI). This proposal would mean that nobody would ever pay more than 45% of their total income in tax no matter how high their income was. These proposals would allow government to achieve a more appropriate contribution from the very highest earners in Irish society while also ensuring they don’t face a penal effective tax rate.
These proposals would ensure reform of the income taxation system so that all earners are treated more equitably.