The principle of a citizens financial contribution to the State in the form of income tax has since Roman times, been correlated to some degree with the persons ability to pay. Since the introduction of the quill and abacus, determining one persons ability relative to another has been defined and refined by successive governmental administrations. Over the last thirty years we have managed to automate many of the functions of tax collection and more importantly, all of the calculations required to determine who should pay what.
So, why are we still hung up on only three tax points i.e. tax free allowance, the lower rate and the upper rate ? In this day and age given the technology that the Revenue Commissioners have at their disposal it would be extremely straightforward to have multiple tax bands. There is no reason why it would not be possible to have 10, 15 or maybe even 20 separate tax rates to be applied depending on the level of income. It is system such as this was utilised, it would then be possible to equitably apply personal income tax to individuals based on a proportion of their income.
The reality is that there are certain “fixed costs” that everybody has to pay in order have a reasonable standard of living and up to this level taxation should be very lenient. In this country I believe that this threshold should be somewhere in the region of €40,000. From then on, I would propose that taxation could possibly be increased by one percentage point on every additional €10,000 of income up to say €120,000. From there to say €200K make the additional 1% increment apply every twenty thousand euro’s of additional income. From there maybe 1% for every additional €30K up to a maximum of say 55%.
Maybe the ideas contained herein need some refining but I certainly think it is time that we opened the debate. However, given that the Dept. of Finance seem to be incapable of demonstrating innovation in relation to personal taxation (or corporate taxation, for that matter) I am of the opinion that income tax rates in Ireland will rise by between seven and ten percent at some point in the next 12 months. Furthermore, I believe that value added tax, will increase by possibly three to five percent during the same period, as will all forms of ‘stealth’ and indirect taxes. We can not get ourselves out of the recession by capital spending cuts alone and the quicker all the social partners realise this, the sooner we can concentrate on how we make the present system more equitable.
No matter how we do it, the recovery is going to be staggeringly painful for all but the most well off in this society.