Jason OMahony - Irish political blogger, Irish politics, EU politics
 

What does “the rich should pay their fair share ” actually mean?

Posted by Jason O on Apr 11, 2012 in Irish Politics |

It’s a default statement that is never questioned, but what does it actually mean? After all, the top 0.5% of earners in Ireland in 2009 paid 18% of all income tax. In 2010, the top 5% paid 44% of income tax. How is that unfair? When you talk to people about it, the argument goes a funny way, because it emerges, in my experience, that the argument is not about what a fair share actually is, but about the fact that the rich are somehow rich through some form of trickery, and that admitting that hard work creates wealth is curiously un-Irish. But let’s be honest: there’s also the simple fact that it is not regarded as socially unacceptable in Ireland to be just plain openly jealous about other people being rich. When Richard Boyd Barrett speaks about the rich, he speaks about them as if they deserve to be punished, in short, for being rich and therefore wicked. 

There is an argument that the rich should pay a higher proportion of their income because they have “spare money”. The problem with that is that “spare money” is a subjective idea. If Dennis O’Brien’s wealth plummets to €2-3 million, he no longer feels he’s rich, or has “spare money”. What about an unemployed guy living next to a civil servant who has just bought a 2011 Ford Focus? In his eyes, his neighbour is loaded, and should pay extra tax. After all, he can afford a brand new Ford Focus. Yet to a  returned immigrant living in a bedsit, looking at his unemployed neighbour who has a house, he’s thinking how he would love to have the house the unemployed guy has. In short, to be as rich as him.

What we really mean when we talk about fairness is “Leave my money alone. Take that guy’s money instead!” If we are to really talk about fairness, let’s talk about what we really mean. Of course we should have a progressive tax system, and of course those of us who earn more than others should pay higher tax, but where does fairness end? I reckon it’s about 40% of gross income. After that, people, regardless of how wealthy they are, start to get antsy for the simple reason that they see a large chunk of their effort taken off them. It’s then compounded by the fact that those taxes are, in the eyes of many Irish people, misspent. Yet Richard Boyd Barrett wants those people to be the villains of the piece. For working?

The curious thing is that if the top 5% did leave, our income tax receipts would drop by 44%, forcing us to slash spending on the poorest in our society. What’s the hard left’s answer to that?

9 Comments

Michael
Apr 11, 2012 at 6:33 am

I think most people saying it mean that you should be an equal or higher effective tax rate than those earning less than you. A simple concept really that doesn’t hold for many higher earners here or in other societies. And when you look at things like the new tax relief for foreign executives we are moving away from that model not towards it.

Why, after a budget that introduced massive cuts which disproportionately hurt the less well off, do I not pay a cent extra in income tax?


 
Jason O
Apr 11, 2012 at 6:57 am

Michael, that’s a very good question: why aren’t YOU paying more income tax? After all, it is my understanding that the Revenue Commissioners will accept voluntary additional contributions from citizens who wish to contribute more, so let’s see you lead by example, and send them what proportion extra you feel you should be paying. And by the way, don’t forget to send me a copy of the receipt, so I can post it on the blog and show that you at least are putting your money where your mouth is. Or will you prove me right about people claiming they are happy to pay extra tax when they aren’t really?


 
Michael
Apr 11, 2012 at 7:01 am

The tax system shouldn’t be opt-in, it should be fair and universal. I don’t think you addressed the point I was making. A point incidentally that noted US socialist Warren Buffet has made much more effectively than I have.


 
Jason O
Apr 11, 2012 at 7:06 am

My point is that our tax system reflects the Irish people’s true attitude to tax. We are a nation of low tax right wingers. Even you, arguing from the left of me, are only willing to discuss paying more tax on a theoretical basis. You don’t seem willing to actually do it. And hey, I don’t blame you. I too can spend my money better than they can, and that includes deciding which charities to donate to. Your heart beats on the left, but your wallet remains on the right!


 
Jason O
Apr 11, 2012 at 7:08 am

Sorry, forgot to address your Buffet point: of course a tax system should be progressive, as Buffet says. My problem is that in Ireland people believe that should only apply to the people above. Look at the household charge: do not tell me everybody who did not pay can’t afford it.


 
Michael
Apr 11, 2012 at 7:17 am

Thanks for acknowledging my point. I don’t consider myself very lefty or think that a progressive tax system is a particularly left wing idea. Hey- even Ronald Reagan supported it.

And I’m not sure why you are talking about my wallet because you don’t know what goes on with it. I think you can hold and argue a political decision without having to martyr yourself to it.


 
Jason O
Apr 11, 2012 at 7:19 am

But Michael, you brought it up! You asked why you don’t pay an extra cent in income tax.


 
Will W
Apr 11, 2012 at 8:55 am

Some of you may already have seen this anecdote as a circulating email. It’s called “Bar Stool Economics” – appropriate for Ireland i think.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
“Since you are all such good customers”, he said, “I’m going to reduce the cost of your daily beer by $20″. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his “fair share?”
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
“I only got a dollar out of the $20,” declared the sixth man. He pointed to the tenth man, “but he got $10!”
“Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!”
“That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!”
“Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.


 
Joe
Apr 13, 2012 at 5:56 pm

And in other news, the poor still aren’t hiring.


 

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