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Column: Taxing the wealthy is an option we need to look at

High earners and corporations – should they not ‘share the burden’ with the rest of us, asks Kieran Allen.

Kieran Allen

Earlier this month, Junior Finance Minister Brian Hayes stated that the Government had reached the limit on tax increases. His statement angered many Labour TDs and ministers, who said to say such a thing was premature.

‘ENDGAME’ HAS BECOME the latest motif of the Government’s spin doctors. We’ve done 85 per cent of the work, proclaims Eamon Gilmore, implying there is just a little more austerity to go. We reached ‘virtually the end’ on income tax rises, echoes junior Minister Brian Hayes, suggesting that we now concentrate on cutbacks.

The government’s end game refers to a return to the bond markets and the departure of the Troika. But it doesn’t mean an end to the policies of austerity or ‘structural reforms’. Future governments will continue to sell off state assets, slash lone parent benefit, increase student fees. It will be more of the same. The only difference is that our own masters will answer directly to that anonymous force known as ‘The Markets’.
The fanciful endgame propaganda is a response to the rising mood of rebellion. But it does not stack up and Brian Hayes’s argument on income tax shows why.

No more

If he simply meant that there should be no more taxes on low and middle income earners, few would disagree. In fact, we might go further. The Universal Social Charge that was imposed on those earning under €40,000, was a particular short sighted move because it reduced demand in the domestic economy and so helped to cut jobs. It should be abolished and the USC rate for those earning between €40,000 and €70,000 should be halved.

These measures would mean a loss of revenue of €2.5 billion. But the same amount of money could be raised by increasing income tax on those earning over €100,000. The United Left Alliance’s pre-Budget submission argued for effective tax rate of between 37 per cent and 60 per cent for this category, depending on whether they fall near the €100,000 mark or the €1 million a year mark.

So it is not about a limit on income taxes – the real issue is shifting the burden from low and middle earners to those on super-salaries.
In support of his argument, Hayes claimed that 40 percent of all our taxes come from income. But does this not imply that we should seek other forms of revenue that are not based on income?  Taxes on speculation, profits and wealth, maybe?

Options

Despite the valiant efforts of the Labour MEP Nessa Childers, there has been little focus on the government’s failure to implement an EU Commission proposal for a financial transactions tax. This suggested a tiny 0.01 per cent levy on derivative contracts and a 0.1 per cent on transaction in shares and bonds. It would raise between €500 and €700 million a year in Ireland and so there would be no need for a property tax.

‘But it will scare away jobs’ screams the chorus of politicians, media hacks and stockbroker economists. Strangely, we never hear how many jobs will go and from where  are they most likely to disappear.

This is because no detailed risk assessment was done. There was no cost-benefit analysis on whether the €500 -€700 million that might accrue in taxes outweighed the small amount of jobs losses – if indeed there were to be any. The government simply took the word of the IFSC Clearing House Group composed of the companies involved in financial speculation and did what they were told. Nothing.

Brian Hayes might also look at the sacred cow of corporation taxes. Most of the giant companies operating in Ireland do not effectively pay the official 12.5 per cent corporation profit rate. Take GE Capital Aviation Funding, for example, which is involved in aircraft leasing. Last year it made profits of $765 million, making it one of the most profitable companies in the state. But it only paid $379,000 in tax – which amounts to a tax rate of 0.5 per cent.

Corporation tax

Starbucks is another fine example. Starbucks has been operating in Ireland since 2005 but its total tax bill since then has come to a mere €35,000. In other words, it contributed less to the Irish exchequer than one middle income PAYE worker.

GE Capital Aviation Funding and Starbucks are not exceptions.  Ireland has branded itself as a global tax haven for the rich – and so its people must bear the main burden for funding the state. Figures from the most recently published Revenue Commissioners report for 2010 show how it works.

Corporation Tax for Accounting Period 2008 in €million:

The Revenue is notified of trading profits of €65 billion. Yet it only receives a mere €3.9 billion in tax. This represents an effective tax rate of six percent. In other words, companies pay less than half the official tax rate.

Second, the allowances which enable companies to reduce their taxable income amounts to MORE than the actual profits declared. This absurd situation arises because Irish tax law is extraordinary generous to corporations. If the losses are not used in one year, for example, they can be carried over to another. If one subsidiary of a corporation makes a loss, another subsidiary can write them off against its taxable income. And so on.

If Brian Hayes is so concerned with taxes on income, maybe his government could look at taking more from global corporations. After all, must we not all ‘share the burden’?

Kieran Allen is a Senior Lecturer in Sociology in University College Dublin. He is the author of Ireland’s Economic Crash (Dublin: Liffey Press 2009) To read more by Kieran Allen for TheJournal.ie click here.

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