There are important issues with regard to fairness, the tax burden and the distribution of income that are only superficially touched on in public debate, usually in politicised rhetoric. The prospects for a reasonable and informative discussion are not great ahead of the Budget and General Election.
That shouldn't stop us trying. An issue was made recently of the new 1999 Revenue Statistical Report covering 1997-98. Colm Rapple got hold of it early and told us, rather disapprovingly, on RTE Radio that it showed the extent of income inequality.
The figures do provide a detailed picture of declared income among all taxpayers, distinguishing between PAYE and self-employed people. But whether the statistics show a problem, and what problem, is another question.
They show that the 43,651 income tax-paying cases with gross incomes of £50,000 and more earned 16.7 per cent of all taxed income. ("Income tax cases" is how the Revenue refers to you and I, including married couples.) They represent 3 per cent of taxpayers and contributed 25.7 per cent of all income tax.
At the other end of the scale, 631,358 taxpayers had gross incomes of less than £10,000. Together, they earned 13.4 per cent of gross taxable income. They represent 43.6 per cent of taxpayers and they contributed 4.26 per cent of total income tax.
To recap, 3 per cent of taxpayers contributed more than 25 per cent of income tax, £1.215 billion, in 1997-98, while nearly half of the taxpayers contributed 4 per cent.
There are caveats to these figures but, such as they are, what you make of them depends on your view of how much tax the better off should contribute relative to the less well off. In other words, it depends on your view of how progressive the tax system should be.
It is indisputable that the better off contribute proportionately more than the less well off, and considerably more so. And this is as most people believe it should be.
The big question is, how much more should well-off people pay? What should the difference be? When you next hear rhetoric about the rich having to contribute their fair share, remember that 3 per cent of taxpayers contribute 25 per cent of income tax. Is that fair? Is it too little? Could it possibly be too much?
You will be helped in sorting out rhetoric from fact by some related analysis from the Revenue. It shows simply that as people earn more, the proportion of their income they contribute in tax also rises.
Thus, in the 1999-2000 tax year, a single person earning £5,000 paid no tax; those earning £10,000 paid 11.5 per cent of gross income; at £35,000, the proportion was 33.6 per cent; and at £100,000, 41.7 per cent.
It is worth noting also that single people at all levels paid a higher proportion of tax on the same income as married couples. There was a 12 percentage point difference in favour of married couples at £20,000, falling to a gap of four points at £100,000. That was the context for the much-derided policy to tax each person as an individual.
But the main point is that, as you earn more, not only do you pay more tax, you pay a higher proportion of your income in tax. At the limit, that proportion is the top marginal rate of tax. The tax system is already progressive, and very quickly so.
This fact is surely as critical to any discussion of income inequality as relative income statistics. It is usually ignored, conveniently so, for left-wing political agendas. Mr Derek McDowell's cheap, and surprising, rhetoric about leathered Lexuses in rich people's driveways is a deliberate diversion from the facts about progressive tax.
His remark was actually in the context of a detailed document on fiscal policy from the Labour Party. It bears careful scrutiny across all areas. But it struck me as odd that a fundamental issue about tax - how progressive it should be, and how steeply so - was not addressed at all. The party of the Left has decided that the present income tax structure, including the top rate, is just right. In fact, it says, reading the lips of a strange bedfellow, "no new taxes" in relation to personal income tax (Bush Snr broke that promise). And it holds out no prospect of a cut either, except at the lower end in the context of the Programme for Prosperity and Fairness.
If the present structure is right, the vehement opposition to earlier cuts in the top rate of tax is rationally inexplicable. If those cuts were wrong, surely a top priority would be to reverse them? On the other hand, if the present structure is so correct, then why were measures to get us here so strongly opposed?
There is a lot to discuss about progressive tax and incomes. The Budget and election would ideally be informed by a reasonable discussion, rather than making such discussion impossible.
Oliver O'Connor is contributing editor at Finance and Finance Dublin. E-mail: ooconnor@indigo.ie
