Joe Gill: Why increasing income taxes just will not work

Joe Gill: Why increasing income taxes just will not work

Taxpayers are an interesting lot.

Collectively, they contribute the hard cash that allows a political and civil service system to operate from year to year.

That’s a powerful role, yet — at an individual level — a taxpayer has an insipid voice.

Just consider the realms of political debate that has festooned the airwaves over the weeks running into the general election.

A wide variety of cohorts in the population have been called out.

Farmers, house owners, patients and those with children have been packaged and targeted in political declarations.

The common denominator is that all of them are being promised more money and that money can, in reality, only come from one source – the taxpayer.

When anyone tries to make a legitimate case on behalf of a taxpayer they are either shouted down or consigned to a category labelled “selfish” or “self centred”.

The clear implication is that individual taxpayers should not form a core part of political discourse but instead stand by for the higher taxes that inevitably come from the lengthening list of spending plans being put forward.

At its centre, this narrative positions taxpayers as being simply a source of money instead of being self standing economic agents that should be allowed to make their own decisions about their own income.

The 18th Century economist and so-called ‘father of economics’ Adam Smith used to explain how an invisible hand operated in the economy, whereby the combined spending habit of income earners fuelled an efficient system of checks and balance.

That thesis argued a collection of individual decisions were better than centralised spending and, hence, taxes should be kept to a minimum.

Joe Gill: Why increasing income taxes just will not work

An alternative school of economics believe employees should be taxed hard and that money is best allocated by the political and civil service classes who are best placed to oversee an economy.

This latter version is full of potential for pork barrel politics, corruption, cronyism and poor economic outcomes.

If a small group of individuals have control over large tax revenues they can become intoxicated with the short-term power that brings.

Anyone old enough to remember the 1970s will know of a political class that thought marginal personal tax rates of close to 70% were just fine because they funded the elite while having the masses foot the bill.

These memories are alive in my head while listening to the various efforts to justify higher tax rates as the means to solving Ireland’s problems at present.

A recent study by the Irish Tax Institute shows that income earners in Ireland are number two in the entire OECD when it comes to paying progressive taxes.

That means the higher your income the greater the tax you pay compared to other countries.

The study found that when income rises above €48,000 Irish taxpayers pay relatively more than all OECD countries aside from Germany, France and Sweden.

This general election has allowed a narrative to develop that suggests Irish PAYE taxpayers should be hit with more taxes as they earn more to fund various shortcomings in the economy.

So, on top of what are already massive state borrowings, this proposal would extract more money from individuals’ pockets.

If we aim to enlarge the Irish economy as home for future generations that do not have to emigrate then we need to stimulate a much greater number of jobs.

That, in turn, can fuel a higher tax take to support public services without gouging even more money through higher tax rates.

To create those jobs, we need a tax system that rewards hard work and makes living in Ireland more attractive than abroad.

Jacking up tax rates is a poor way of delivering that.

Economic buoyancy that delivers a larger tax pot is better.

Joe Gill is director of origination and corporate broking with Goodbody Stockbrokers. His views are personal.

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