A recent OECD report olooks at the progressivity
of income tax systems in their 34 member countries. A progressive tax is often simply
defined as one where you pay a higher rate at higher income, but the OECD goes
a little further, incorporating social security contributions, child benefits
and some other measures. They also
consider different sorts of taxpayers – single people and single-income
couples, both with and without children. The big limitation of their analysis
is that they only look at how progressive the tax system is up to the level of
twice the average wage. This matters because countries with a welfare system
targeted at low earners will tend to be progressive at those levels. In fact, across
the OECD, taxes are more progressive at low incomes, and less so as incomes
rise. Despite this caveat, the report has interesting analysis, and gives a really interesting picture of where Ireland is, albeit at lower income levels.
So how do we fare, as a country? Well, we stand out in a number of ways. The
headline result is that on average our tax system looks really progressive – we’re at or
near the top of most tables across the OECD. When you drill into our individual
charts, however, you can see that this is largely driven by how our system works at
the lowest income levels. We are progressive here, particularly when social security contributions are
taken onto account because the USC is charged a lower rate in this level. As you reach and exceed the average industrial
wage, our progressivity drops dramatically, which is why in Ireland in
particular it would be nice to see this study extended into higher income
brackets.
We show a few interesting kinks in our system especially when you compare tax wedges and
tax rates for taxpayers with and without children. Much of this kicks in at
income levels of around €50,000 and probably derives from the shift from the
low to the high tax bracket.
The analysis is tantalising, but because it only looks at incomes up to around €85,000, it sheds no light on the
fairness or otherwise of higher taxes on the higher-paid. The full report is
available here
Sheila Killian
@islandtotheleft
2 comments:
We are progressive here, particularly when social security contributions are taken onto account because the USC is charged a lower rate in this level.
Huh?
So, our system is only progressive because we levy lower rates of deductions on the lower paid.
Is there another kind of progressivity?
In this context (tax, OECD etc) progressive means more or less that - lower rates on lower income. This particular OECD study is limited because it only looks at incomes up to the ceiling of €85,000 or so. Beyond that, I think our system would look a lot less progressive (as defined).
Obviously it would be interesting to look at the question more widely than just income-based taxes, and to find a way of looking accurately through companies and so on. That would be more complete
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