Fairness in Changing Income Taxes

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The need for fairness in the tax system was clearly recognised in the first report of the Commission on Taxation 33 years ago. The need for fairness is just as obvious today and Social Justice Ireland believes that this should be a central objective of policy making as various plans for changes to the system are considered. Despite low overall levels of taxation, and low effective income taxation rates, reductions in income taxation levels continue to be highlighted as a potential policy reform. Social Justice Ireland believes that the best reform to the income taxation system would be to make tax credits refundable. Such a reform would mean that the full value of tax credits goes to everybody who has an earned income. The main beneficiaries would be low-paid employees (full-time and part-time). This option would improve the net income of workers whose incomes are lowest. Broader reforms to income taxes are not a central priority for Social Justice Ireland either in forthcoming Budgets or in any future plans for taxation policy reform. We believe that any available money should be used to improve Ireland's social services and infrastructure, reduce poverty and social exclusion and increase the number of jobs – policy priorities highlighted throughout our various publications. However, as discussion and policy considerations often focus on income taxation reductions we have undertaken this study to examine, from the perspective of fairness, various reform choices. As a minimum, the analysis highlights the distributive impact taxation policy choices can have and the potential policy has to pursue both fair and unfair outcomes. The document includes two examinations: a) An assessment of the fairness of eight possible income taxation options, each with a full-year cost of between €184m to €288m; equivalent to approximately 1% and 1.5% of the income taxation yield. b) An assessment of the fairness of plans to abolish the Universal Social Charge for most earners.
Taxation, Tax Fairness, Fighting Tax Evasion, Tax Model, Poverty, Social Exclusion
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Monday, September 12, 2016
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Fairness in Changing Income Taxes
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