Why a 23 percent Flat Tax Leads to Inequality

An examination of the economics of flat taxes

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RENUA propose introducing a single 23% tax on any income over €8,000, including welfare payments, and abolishing the Universal Social Charge (USC) and Pay Related Social Insurance (PRSI).

 

Currently Ireland has two basic rates of income, 20% and 40%. Depending whether you are single, a lone parent or married the higher rate of tax kicks in between €33,800 and €42,800. Everything below this amount is still taxed at 20%.

 

Therefore you won’t take home less because you’ve moved into the higher bracket.

 

This is called a progressive tax system. The idea is that those who can afford to contribute more to the public system should pay more.

 

Proponents of the flat tax model argue that it is a fairer system to charge everyone the same rate, and that the progressive tax model essentially penalises those who work.

 

They also suggest that a simpler system of tax would free up resources to tackle those trading on the black market, such as under the table cash payments for services, which currently totals over €20 billion a year.

 

RENUA leader Lucinda Creighton also argues that the lower tax rate would mean that there would be 20% more in disposable income which people would reinvest back into the economy by increasing spending on goods and services.

 

However there are two specific issues with the idea of a flat tax. The first issue is the unequal impacts of having the same rate of tax regardless of earning.

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