Sunday 25 February 2018

ECB rate rises and tax hikes: it's the doomsday double whammy

Having put money into our pocket for the last five years, the ECB will change tack writes, Marc Coleman

Richard Bruton
Richard Bruton

Richard Bruton says the marginal rate of income tax must come down. Some of his colleagues disagree: how, they ask, can tax cuts be justified for those on higher incomes when spending is also falling?

Apart from the fallacy that marginal income taxes affect only those on higher incomes – the average Irish industrial worker is now subject to the highest marginal taxes in the eurozone – the premise of their question is false. From €57.3bn when the crisis began in 2008 to €60.8bn by the end of this year, gross current spending will, during the first five years of the crisis, have risen, not fallen, by 6 per cent. Household incomes, by contrast, are down 8 per cent since 2008. Marginal income tax rises, the Universal Social Charge, health levies and various indirect taxes are just some of the reasons why.

So, tempting as it is to see this in ideological terms with tax-cutters on the right championing higher earners and tax-raisers to the left championing the poor, it is those on lower and middle incomes who are most in need of tax cuts. But there is an even more powerful argument for tax reductions. One that cuts across the ideological divide and makes the case for cuts – at least temporary cuts for the next few years – crystal clear.

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