Most people won't benefit from any change to the 41% higher tax rate

Talk of cuts to the 41% higher rate of income tax ignores the fact that two-thirds of people paying income tax do not pay any tax at that rate. The main beneficiaries will be those on higher incomes, whereas everyone will lose from cuts to public services.

A new report launched today by TASC provides a detailed analysis of the Irish tax system. While some higher earners will benefit from tax cuts, everyone will lose from the resulting reduction of public services like health, education and social protection. Tax cuts will also reduce funds available for public investment in the economy, which has a vital role in sustainable economic recovery.

Main findings:

• A single person on €40,000, despite paying some tax at the "higher rate”, actually pays less than 10% income tax. On an income of €275,000, actual income tax paid is only 30%.
• If PRSI and USC are included - for a "marginal tax rate" of 52% - in fact a single person on €40,000 only really pays 15.5% of their gross income.
• Two-thirds (65%) of people who pay income tax do not pay anything at the higher rate.
• Only five per cent of people who pay income tax actually pay the higher rate of tax on more than half of their gross income.
• Everyone is a taxpayer, and families on the lowest incomes pay more than a quarter of their income in consumption taxes like VAT and excise.
• The public cost of tax reliefs and tax breaks, which greatly benefit the highest earners, is equal to more than a quarter of all taxes raised. This is far above the European average, and the cost of tax breaks has increased despite the economic downturn.

• Maintain, and if possible increase, public service provision. Everyone in Ireland benefits from the ‘public value’ of public spending and most people in Ireland would be better off maintaining public services rather than paying less tax.
• If the Government wants to cut tax in one area, they should offset it elsewhere. Introducing a third marginal rate of income tax of 48% on incomes above €100,000 would affect less than one in 20 people who pay income tax, but would raise €365 million to pay for public services or tax cuts.
• Likewise, tax cuts and public services could be funded by reducing Ireland’s high level of non-basic tax reliefs, which cost €9.6 billion in 2010.
• One equitable tax cut would be to remove a 'step effect’ in the PRSI system. At worst, the current system can require an employer to pay €1,680 to give a low paid employee a net annual raise of just one euro.
• In terms of income tax changes, increasing tax credits rather than changing the 41% rate or the bands would benefit nearly all workers equally in real terms, although some part-time workers would still not benefit.
• Lowering the VAT rate by 1% would benefit far more people than income tax cuts.