Last week, I posted a quick quiz on Ireland’s income tax, three questions with multiple choice answers. I had hoped for about 100 responses, but I was delighted to find that over 200 people had filled it out by the start of the weekend. I was also delighted to see such a range of responses, which hopefully indicates that not all readers are of a particular persuasion, at least when it comes to government taxes and spending.
Perhaps the second most surprising thing is how few people were able to answer correctly three basic questions about Ireland’s income tax system. Just 1.8% of respondents got three out of three questions right. That’s less than one in fifty people. Naturally, this was just an online sample, but there is little to suggest that the offline population is significantly better educated – in fact, one may expect the opposite.
So, what is popular perception?
People think the income tax system is a lot less progressive than it actually is and that the typical earner’s tax burden is far higher than it actuallly is.
Only about one in four people knew that higher earners pay significantly more in tax than typical earners, the first chart shown. Almost half the respondents believed they actually paid a smaller percentage! About a quarter also got the second question right, i.e. that two thirds of workers pay less than 10% of their income over in income tax each year, the second chart shown.
The final question stumped nearly everyone (and again, I’m happy to state that I’d have only got 1 out of 3 before I did my research). Just 5% of respondents knew that the median earner pays just 4 percent of their income in income tax, the third graph below.
On the whole, the most popular combination of answers was (1) that Ireland’s very high earners pay significantly less tax than the average worker (in fact, they pay about six times the rate), (2) that 33% of earners pay less than 10% of their income over in tax (in fact, it’s twice that amount), and (3) that the median earner pays 24% of their income in tax (in fact, he or she pays just 4%).
So that’s where people think we are. Where do people think we should go, though? That’s where the results were most surprising, in my opinion. Regardless of how the results are clustered, there is remarkable consistency among different groups about what the rate of tax on average earners should be: somewhere between 20% and 25%.
For example, those labouring under the impression that very high earners pay significantly less of their income in tax than average earners do not believe that the median earner’s tax burden should be lowered by much. If they had their way, they would “reduce” the tax burden on the median earner to 23.5% (remember, it’s currently 4%).
At the other end of the spectrum, those aware that high earners pay significantly more in tax believe that the median earner’s tax rate should be 21%. The graph below shows what people think the median worker should pay in tax. The mean and the median were both 23%.
Less than 5% of people would choose a tax burden of anywhere between where it is now and twice that level (i.e. less than 10%)! Two thirds believe the median worker should pay somewhere between 16% and 30%, i.e. more in line with our OECD counterparts.
As I mentioned before, I would aim for about 15%, which would represent a significant decrease in tax-free allowances but still make Ireland competitive in attracting skilled labour here.
The challenge for the Government and indirectly for Commission on Taxation – some of whom have read last week’s post – is to make people aware of the current structure of taxation, before making their proposals known. Very few citizens would choose a system where only 4% is paid by the typical worker, and very few citizens know that’s the system we have.