Monday, March 14, 2011

The changing burden of taxation

Here is a graph that shows the approximate proportion of income tax paid by each income decline (the first decile are the lowest 10% of incomes reported to the Revenue Commissioners, the second decline are the next 10% of incomes and so on).  These figures are approximate as the Revenue do not provide individual level data and they are calculated using the income ranges used in the Revenue’s Annual Statistical Reports.

Income Tax Paid by Decile

The gradual shift of the income tax burden can be seen.  Back in 1997, the top income decile paid 46.1% of the total income tax.  By 2008 this had increased to 60.1%.  The proportion of income tax paid by all other deciles has declined with the largest relative falls seen in the lowest deciles.

Of course, it could be that the tenth decile is paying a greater proportion of the income tax because they are earning more of the income.  Here are the approximate proportions of income earned by the same deciles.

Income Earned by Decile

The proportions show the unequal distribution of earned income but are remarkably stable.  In 2000 the top decile earned 35.7% of the gross income reported to the Revenue Commissioners.  In 2008 the proportion was 35.7% – absolutely no change.  Much the same holds for all income deciles.


  1. Seamus: in your first para, and in the second line of the last para, "decile" has become "decline" (I suspect a spill-chucker is to blame).


  2. Seamus

    I think you would need to define "income" here.
    Is it gross income or is it income net of certain tax reliefs. In particular, I have in mind pension relief which is availed of by a large number of people on relatively higher incomes. Then we have the property reliefs.
    I suspect, though I could be wrong, that the revenue figures are net. This would make a substantial difference to the obvious conclusions be drawn.

    The reason I believe that the figures are net is that the revenue p35 form (the year end form used to summarise income for all employees in a company) records gross income as income net of non taxable pension contributions. I don't know that the revenue collect a gross figure.

  3. Hi Tumbrel,

    You are right that this is an important issue and one I have not properly addressed. I don't think this would make a huge difference to either graph here as they are based on proportions but some earlier conclusions about effective tax rates would obviously be more dependent on this.

    The Revenue produce their stats for three types of income:
    - Gross Income Charged
    - "Total" Income Charged
    - Total Taxable Income

    If the data were presented in a more user friendly manner it might be possible to carry out comparatory analysis by each income type. Assimilating the data for one type was enough for me.

    In general, I am happy enough to use Gross Income. Whether someone can avail of pension reliefs or capital allowances reduces their tax bill but such a measure might not represent the money they actually earned.

    Here are the definitions used by the Revenue. Enjoy!

    GROSS INCOME is the income brought under the review of the department before adjustments are made in respect of capital allowances, interest paid, losses, allowable expenses, retirement annuities etc. but after deduction of superannuation contributions by employees. It includes certain income belonging to individuals whose total income is below the exemption limits. It does not include certain other income which is not income for tax purposes or is exempt from tax such as profits or gains from stallion fees (pre-August 2008), profits from commercial forestry and certain income from patent royalties, certain investment income arising from personal injuries, child benefit, maternity benefit and unemployment assistance paid by the Department of Social, Community and Family Affairs, certain earnings of writers, composers and artists, bonus or interest paid under Instalment Savings Schemes operated by An Post, interest on certain Government securities, certain foreign pensions which are exempt from tax in the foreign paying country, portion of certain lump sums received by employees on cessation of their employment, statutory redundancy payments and certain military pensions. Other income sources which are either not included or not fully included are employee contributions to pension funds (tax deductible), interest income that does not need to be declared or is not recorded (but from taxed by restriction of repayments or indirectly through employers in the PAYE system), and the incomes of certain self-employed persons, including some farmers, as well as some individuals in receipt of pensions, who are not processed annually on tax records because their incomes are below the income tax thresholds.

    "TOTAL" INCOME is the total income of taxpayers from all sources as estimated in accordance with the provisions of the Income Tax Acts. It is net of such items as capital allowances, allowable interest which is not subject to relief at the standard rate, losses, allowable expenses, retirement annuities and superannuation contributions. For the purposes of the exemption limits, interest allowable for tax purposes is a deduction in computing total income.

    Declared interest income received by individuals and any income such as distributions (i.e. dividends plus tax credits) received is included. Benefits-in-kind are also included to the extent that they are chargeable to income tax

    TAXABLE INCOME is that part of income on which tax is actually calculated. It is thus the total income of taxpayers less personal reliefs and other deductions but prior to the application of tax credits and reliefs at the standard rate (which are given by way of a reduction of tax chargeable).