Regressive Taxation

national | anti-capitalism | opinion/analysis Tuesday June 15, 2010 14:07 by Gavin Gleeson - Workers Solidarity Movement - Lucy Parsons (Personal Capacity)

Progressive taxation is a taxation system which seeks a higher tax rate for higher incomes. It is a relatively common feature in the western democracies. In Ireland however, its implementation is almost entirely nominal.

Progressive taxation is a taxation system which seeks a higher tax rate for higher incomes. It is a relatively common feature in the western democracies. In Ireland however, its implementation is almost entirely nominal.

There are several reasons that progressive taxation has been advanced. Among the most widely cited reason for progressive taxation is the ability to pay. People making very little money find a 10% change in income much more burdensome than people who make vastly more money. In addition to this there are other important benefits. More equitable wealth distribution tends to lead to less crime [1]. In addition, a society with vast differentials in wealth is very unlikely to have a healthy democracy, as wealth allows a message to be amplified, through lobbying and other means. In addition, those with the most wealth also find the most benefit from state services. One need only look at the examples of NAMA and the lengths to which the Irish state has gone to funnel public funds to protect the wealthy. It only stands to reason that such VIP service should at least incur a higher tax rate.

Capitalism, by its very nature, is at odds with any attempt to stop wealth condensation [2] - that is - the accumulation of wealth into the hands of the few. It's very dynamics ensure that any success gives leverage to further successes, whether those success are accidental or not. The rich get richer and the poor get poorer, isn't just a slogan, but a feature of even completely "fair" games [3].

Simply giving money to the state through taxation isn't really progressive in itself either, since they state is not really in the hands of the public, but is quite close to the interests of the bankers, the property developers and their attachés in government.

However, currently the entire public service is under attack and deep cuts are intended across the board, including buses, pools, pitches, education, social welfare and many other things important to our quality of life. The reason of course is that there isn't enough money to go around. While the bankers and land developers seem to manage quite a lot of money from the public coffers, the rest of us are being put out into the cold.

So how much are the rich paying? A report published by the Department of Finance[4] sought to find out the answer to this question. The results of a survey of 214 individuals making €500,000 show just how little tax is actually paid. The average effective tax rate was 20.08%. This is essentially the same tax rate as a single PAYE worker pays on income up to €36,400. The report details that of the people surveyed in the income band 250k-300k the effective tax rate was only 5%! Hardly a system of progressive taxation.

The media and politicians usually talk in terms of marginal tax rates - rates that make the actual tax rates paid by the rich sound vastly higher than they actually are. Eamonn Gilmore of the Labour Party claimed on RTE that the marginal tax rate for the rich should be raised to 48% [5]. How much this increase in marginal rates would translate into actual effective tax rate is difficult to determine. Perhaps he should have said that they should pay at least as much as a normal tax payer!

The history of economics shows us that the periodic financial crises that the private sector encounters will not go away. Neither then will the subsequent attendant crises in the public sector when the private sectors house of cards collapses. Every time it happens we'll see the rich claiming that public services must go. However, the next time you hear them claim that they can't find the money anywhere, tell them to take a deeper look into their own pockets first.

[1] http://psych.mcmaster.ca/dalywilson/iiahr2001.pdf
[2] http://en.wikipedia.org/wiki/Wealth_condensation
[3] http://en.wikipedia.org/wiki/Gambler's_ruin
[4] http://www.finance.gov.ie/documents/publications/report...9.pdf
[5] http://www.youtube.com/watch?v=Br7LNKInYGw