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Tuesday, 16th April 2024
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Who should pay? Back  
The Committee Stage debates on the Finance Bill raised the issue as to whether it is right to have large bodies of citizens who are not taxpayers. Is there a danger of this situation arising? Would it be a bad thing?
The following is a brief extract from the Committee Stage debates on the Finance Bill 2001.

Mr McDowell (Labour party): ‘I am not sure that we can continue to exempt an additional hundred thousand people from the tax system. On this one myself and the Minister are at one in that we believe some contribution is appropriate even at relatively low levels of income, albeit not very much, because most income earners should have a stake in our society and should contribute, however small, to the maintenance of services and the provision of public services.

The principle raised by Mr McDowell is one which has not been much debated. There has been a general feeling that exempting people from income tax is ‘a good thing’.

There are obvious dangers in a situation in which a significant part of the electorate are unaffected by spending decisions by the government, at least in the sense of bearing any part of the cost. It could lead to a situation where the legitimate interests of the parts of the population still paying tax are ignored.

On the other hand it is generally agreed that progressivity in the tax system ie that a person's contribution in taxes increases according to their ability to pay, is socially desirable.

Tax exempt a myth
In practice there are probably fewer people who do not pay any tax than one might imagine. One of the merits of a tax system having a plethora of taxes (such as our system in Ireland) is that even if you escape one tax net, there are several others waiting to catch you.

Even if you do not pay income tax, it is difficult to avoid value added tax. Only by confining your expenditure to bare essentials, are you likely to minimise that tax. Excise duties catch those who regard alcohol or cigarettes as part of their daily essentials. Licence payments arise on every side - whether it is for TV, opening a pub, being a bookmaker etc. With private cars being regarded as close to being a necessity, road tax is widely borne, as is vehicle registration tax.

There are very few people at whom the finger can be pointed and about whom it can be said that they have contributed nothing to the running of the State, in terms of taxation.

Nonetheless, there may be validity in the point made in the debate. Increases in VAT, excise duties, licence payments, road taxes etc can be unpopular. But there is at least anecdotal evidence to suggest that they are less sharply resented than an increase in income taxes. The hand of the State stretched into your pay packet seems more obviously like confiscation of what is yours, than is a hike in the cost of goods or services, which may be lost in the overall rate of inflation. To that extent the view that some income tax should be payable by everybody (or almost everybody) may have validity.

Should tax be capped?
Arguments have been put forward in the past in favour of an adjustment in the opposite manner i.e. the capping of the total amount of tax that a person should be called upon to pay.

Generally speaking the progressivity of taxation is not questioned on this side of the Atlantic. It is a principle involving ‘fairness’, social solidarity and also the principle that a small tax has much the same ‘pain’ for a poor person as has a large tax for a rich person. There is an equality of suffering in the payment of tax, where tax is progressive.

But just as it may be argued that in so far as it is at all possible, every voter should contribute towards the State, and that only those entirely unable to do so should be exempted, it might be argued that there should be some limit to the extent to which a taxpayer should be obliged to contribute to the common good. If a taxpayer pays ?1m of income tax in a year, he can be seen to have paid his own reasonable share, and that of scores of other citizens. His commitment to social solidarity is very well proven. But if his tax bill would be ?10m, should he none the less be liable? At that point is he doing more than paying for the benefits he obtains from the State, and contributing to social solidarity? It is easier to ask the question than to answer it.

It has been suggested in the media that an approach was made several years ago to the government by a taxpayer, suggesting that he would undertake a transaction attracting a large amount of gift tax, provided the total payable was capped at a large sum. A special deal for one taxpayer would clearly have been wrong. But should there not be some cap for everybody?

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