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Government Tax Proposals could give €922 a year to a person earning €125,000 while giving NOTHING to those earning below €32,800

Government’s tax proposals should be rejected because they would give all the benefit to those earning over €32,800 while giving nothing to those earning less than that amount according to a new study by Social Justice Ireland.  This study shows that single people earning €125,000 could gain up to €922 (depending on how Government implemented its own proposals) while those earning less thatn €32,800 would gain nothing.

 The following key points should be noted:

  • This study compares both Government proposals (i.e. increasing the 20% tax band and reducing the 41% tax rate) and a third option i.e. increasing tax credits. 
  • To compare these options the study allocates the same amount (€205m) to each option and presents the outcomes.
  • Although all the income tax options cost the same, they each have very different impacts on the income distribution.
  • The fairest outcome is achieved by increasing tax credits. This would provide the same value to all taxpayers across the income distribution provided they were paying more than €108 in income taxes.
  • The most unfair option would be to decrease the 41% tax rate. This would benefit only those paying tax at that rate. Therefore, the single earner on €25,000 gains nothing from this change while those on €50,000 gain €172 per annum and those on €125,000 gain €922 a year. The higher the income, the greater the gain. 
  • Increasing the standard rate band also provides gains which are skewed towards those with higher incomes.  Again, the person on €25,000 would gain nothing but a person on €50,000 would gain €283.50 a year.

“Under no circumstances should the 20% income tax band be widened or the top tax rate reduced in the next Budget” according to Michelle Murphy, Research and Policy Analyst with Social Justice Ireland.  “The poorest 10% of society lost most since the onset of the crisis. A widening of tax bands as proposed by the Minister for Finance would not improve their situation but would increase inequality and widen the rich/poor gap.”

It should be noted that

  • Reducing taxes is not Social Justice Ireland's priority for Budget 2015. Any available money should be used to improve Ireland's social services and infrastructure, reduce poverty and social exclusion and increase the number of jobs.
  • Making tax credits refundable is the fairest and best option for changing the income tax system.  By making tax credits refundable the full value goes to everybody who has an earned income.  The main beneficiaries would be low-paid employees (full-time and part-time).  The system would improve the net income of workers whose incomes are lowest, at a modest cost

Social Justice Irelands Fairness in changing Income Tax - an examination of three options can be accessed here