Sir, – Describing the exceedingly skewed distribution of income tax and the relatively poor services we get in return, Helen Gallagher wonders if our system is “really progressive” (Letters, August 2nd). I’ve often thought that the term belongs in that odd category, like “sanction”, “cleave” or “moot”, of words which can mean two completely different things. Being progressive commonly means tending toward fairness, equality or general improvement, but as regards taxation it simply means that the rate rises as earned income does. In that sense we have about the most progressive system to be found anywhere.
This is, as the correspondent implies, irreconcilable with the public being “incentivised to be more productive”. As marginal tax rates of 62 per cent are reached at entirely unremarkable incomes, many will rationally choose underemployment – working half time, taking extensive unpaid leave, extra summer holidays and so on. Such steps massively increase one’s free time but make a relatively small difference to take-home pay.
As undesirable as this may be, the dilemma for politicians can be reduced to numbers and demographics. This debate began with surveys finding that most of the public would choose better services over income tax cuts. This is hardly surprising as less than 40 per cent of adults pay income tax and so most people can’t benefit from any reduction. Only about 500,000 people are on the higher rate of tax, that is, about 10 per cent of the population.
Ultimately about 10 per cent of those taxpayers contribute 60 per cent of that revenue stream. And it is probably fair to suggest that most of them will typically vote for one of the parties presently in Government. Thus, in terms of the realpolitik, there is no electoral gain to be made by reducing or redistributing the enormous tax burden on higher earners. They, at a 62 per cent rate, effectively work every week for the good of society until some point on Thursday morning. But their votes can surely be relied upon.
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This seems to be a suboptimal situation. Indeed, it brings to mind the observations of Hume, and I think Hegel, about the difficulties of getting from “what is” to “what ought to be”. Describing the current situation as “simply unethical”, the writer suggests a suite of measures which would benefit few of the electorate. They are thus not politically expedient. The universal social charge (USC) which she mentions several times is not at all universal and is simply a steeply progressive tax. If abolished, I’d assume the income tax rates would simply rise to address the shortfall.
Is there any upside to Ireland’s status quo then? Well, yes, there is an enormous one. More equal societies are safer, happier and perform better in the longer run in terms of human development. Our education is excellent, law enforcement is honest and social mobility is good. This country is among the happiest in the world.
While there is much that medium and high earners would like to change about the redistribution of their taxes, this would probably incur a significant social cost. Much of what our high marginal rates of tax purchase is hard to measure, but not trivial. – Yours, etc,
BRIAN O’BRIEN,
Kinsale,
Co Cork.