Taxing times: why the USC is a ravenous wage-eater
Published 26/01/2011 | 05:00
Q: What is the universal social charge?
A: The USC was introduced in last month's Budget. A flat-rate tax, it replaces the old health and income levies and is designed to bring more lower-income earners into the tax net. Despite its misleading title, it is not a form of contributory social insurance like PRSI, which confers rights to certain benefits on contributors, but a tax.
Q: How much?
A: The USC is charged at a rate of 7pc on most income. Most taxpayers pay 2pc USC on the first €10,036 of income, 4pc on the next €5,980 and 7pc on everything over that. Over-70s pay a reduced USC rate of 4pc while anyone earning less than €4,004 per year is not liable.
Q: Why is it controversial?
A: Most workers were paying 2pc income levy on all of their income and 4pc health on any income over €26,000. The USC takes a bigger chunk out of their pre-tax incomes. Combined with the reduction in tax credits and the narrowing of the bands, the average family will be about €3,000 worse off this year.
Q: But isn't this the price we have to pay to restore the Exchequer to solvency?
A: There was a widespread feeling the USC was inherently unfair, particularly to those on very low incomes. People with full medical cards were exempt from the income levy, but paid the full USC. The Government was forced into a partial climbdown yesterday. Those with full medical cards will now pay a 4pc USC -- the same as the over-70s.
Q: How much is this change going to cost?
A: Finance Minister Brian Lenihan estimates that extending the 4pc USC rate to full medical card holders will cost €80m in a full year.
Q: Where is the Government going to recover this?
A: Full medical card holders' gain is the self-employed's loss. In order to recover the €80m which yesterday's concession will cost, self-employed people earning more than €100,000 are going to be hit with an extra 3pc surcharge.