Fintan O’Toole: The myth of Ireland’s progressive tax system

If you got a euro every time you turned on the radio or opened a newspaper to be told that Ireland has one of the most progressive tax systems in the world, you’d be rich.

Except you wouldn’t be because Ireland has one of the most progressive tax systems in the world so the Government would take nearly all the money away from you and give it to the poor.

Repeat after me: "Ireland has one of the most progressive tax systems in the western world." (Sunday Times editorial last Sunday)

“The deputy mentioned a progressive tax system but we have one of the most progressive tax systems in the world in Ireland (Enda Kenny, November 2014).

“We have the most progressive tax system in the OECD” (Michael Noonan, November 2014).

"We have one of the most progressive taxation systems in the world" (Chris Johns, The Irish Times, June 2014).

“Internationally, we have one of the most progressive tax systems in the world.” (Brian Hayes MEP, May 2015)

“[Ireland] has one of the most progressive tax systems in the world” (Alan Kelly, October 2014).

"The tax reforms of recent years mean that Ireland now has the most progressive tax system in the European Union" (Martin Phelan, president of the Irish Tax Institute, The Irish Times, November 2012).

“It should be acknowledged that Ireland has one of the most progressive tax systems in the world” (Michael Noonan, July 2014).

“Ireland now has one of the most progressive tax systems in the developed world” (Eamon Gilmore, October, 2013).

Deceptions

This is one of those memes that reproduces itself in a perfectly closed loop. It is that most dangerous of deceptions: a truth universally acknowledged. And therefore the logic that flows from it – that anyone who even talks about making the taxation system fairer by shifting the burden from the poor to the rich is an idiot – seeps into the groundwater of conventional wisdom, especially, as now, when a budget is in the offing.

The point of all the repetition is to suggest that those at the top need a break from all this world-beating fairness, while those at the bottom have nothing at all to complain about.

The funny thing about this truth is that it's not true at all. It is, literally, not even a half-truth. In the way it's expressed in each of the above quotes, it is a simple trick of language. If you ask the people who keep saying it what their evidence is they'll always refer you to figures produced by the Organisation for Economic Co-Operation and Development (OECD). But the OECD figures they cite don't actually refer to "tax systems" at all. They use a very narrow measure – income tax paid by someone earning €55,000 compared to someone earning €22,000. Be that as it may, they undeniably refer solely and specifically to income tax. A "tax system" means corporate, capital, income, property, wealth, value added and every other form of taxation. Income tax in Ireland is, in terms of the revenue raised, just 41 per cent of the tax system. A claim about that 41 per cent is being systematically converted into a "truth" about the whole system.

The sleight-of-hand is more Tommy Cooper than Penn and Teller, but it works because it tells the right people what they want to hear. Hence the substitution of “tax system” for “income tax” has become almost automatic.

Last week's report from the Irish Tax Institute, for example, actually reads: "Ireland has one of the most progressive income tax systems in the OECD". This becomes, as reported in the Irish Independent on September 23rd, "The institute claims Ireland's tax system is one of the most progressive in the developed world." See what happened there?

Why does this matter? Because it distorts a key reality of Irish life: people at the bottom pay as much of their incomes in tax as those at the top. To hide something as outrageous as this you actually need two linguistic tricks. One is the ideological autocorrect that turns “income tax” to “tax system”.

The other intertwined claim, also repeated ad nauseam, is that huge numbers of people are completely “outside the tax net”, “pay no tax” or “contribute nothing to the national coffers”.

But everyone pays tax. There’s an apparently little-known tax called VAT. There are other indirect taxes. Almost all the tax paid by the bottom 30 per cent of households is indirect. Taxes on consumption are disproportionately paid by people on low incomes who have to spend all their money.

Regressive

The bottom 10 per cent of people pay nearly 30 per cent of their incomes in indirect taxes; the top 10 per cent pay 6 per cent, according to the Nevin Institute. The whole claim to having the most progressive "tax system" depends on ignoring the highly regressive nature of indirect taxes . What do you get if you count them back in? The top 10 per cent pay 29 per cent of their incomes in tax. The bottom 10 per cent pay 28 per cent. That's progressive in the same sense that most of the discussion about this is honest.