Sir, – Harry McGee's piece suggests that, late in the election campaign, the broadening or narrowing of the tax base has replaced the fiscal space as the economic topic of choice for politicians who do not understand or do not wish to be understood ("USC abolition promises prompt row over narrowing of tax base", February 23rd). Some of the candidates who are offering themselves fall into both categories.
In the mid-1980s, the United States started a trend which was followed internationally of reducing tax rates and restricting or eliminating tax shelters. This had the effect of broadening the tax base because income that previously could be sheltered was now subject to taxation albeit at a lower rate.
Ireland was late to that game and in recent years has taken the somewhat novel approach of severely restricting tax deductions while increasing significantly the nominal income tax rates (for this purpose let’s agree that the USC is an income tax).
Another approach to broadening the income tax base is to remove exemptions that previously meant that substantial numbers of income earners paid no income tax.
One of the most striking features of the Irish income tax system pre-USC was that very substantial numbers of income earners did not pay any income tax. The introduction of the USC at graduated rates broadened the tax base by securing that income earners whose income was below the threshold for payment of income tax made a contribution through USC (the “U”, after all, means “universal”).
Harry McGee’s article makes the point that the introduction of the USC resulted in payments from more than 500,000 people who had not paid the health or income levies that the USC replaced.
The abolition of the USC is a matter for political agreement but one point is indisputable – its abolition would result in a very substantial narrowing of the tax base. And this is the case whether it is abolished in its entirety or only for incomes below a certain threshold. – Yours, etc,
PAT O’BRIEN,
Rathmines, Dublin 6.