Are All Our Income Tax Eggs in the One Basket?

The top 22% of Irish taxpayers pay 82% of all personal taxes, according to Revenue Chairman Josephine Feehily who this week addressed the MacGill Summer School in Co. Donegal.

This, in her opinion, makes “the Irish personal tax system is one of the most progressive in the world”.

In progressive taxes systems, the tax rate increases as incomes rise. So high earners bear a disproportionately high  burden of tax liabilities.

In many ways, progressive tax systems make sense, after all basic intuition would suggest that the highest earners should bear a higher share of the overall tax burden than lower earners, simply because they can afford it more.

That said, I’m reminded of the old cliche about never putting all your eggs into the one basket.

With the highest 22% income earners paying over 80% of the tax take, what happens tax revenues if their incomes fall, even marginally?

Ongoing public sector cutbacks and private sector redundancies mean that the numbers of high income earners are dwindling, as are their average incomes.

As these are the people who pay the most taxes, their misfortune is bad news for the rest of us, who will have to bear more and more of the tax burden that the high-earners are currently bearing.

So we face a grim prospect of more income tax, more PRSI and USC levies, more property tax and more stealth taxes.

The case for fundamental reform of the Irish tax system was never more urgent than it is now.

Josephine Feehilly’s speech is online, as are her speaking notes.