Reforming Tax Credits in Budget 2014
Posted on July 31, 2013 by Micheál Collins
Taxation options are a key context for the forthcoming Budget (October). However, given the distortionary effect of any taxation change, and the fragility of the domestic economy, any choices around raising additional tax revenues are challenging. These challenges are magnified given the notable increases to most areas of taxation over recent years. As such, it remains important that choices are examined and their revenue and behavioural implications considered in advance.
In a new NERI Working Paper, I explore the potential of one possible source of additional taxation income. The paper focuses on the potential to reform the current structure of tax credits so that the personal tax credit is gradually withdrawn, or recaptured, from high income earners and entirely eliminated for those with incomes above €100,000. It builds on a proposal from Collins and Walsh (2010, 2011) in their reviews of the Irish tax expenditure system. The paper shows that the policy offers a simple pathway to increase effective tax rates, protect headline marginal tax rates, avoid labour market disincentive effects and raise an additional €115-€130 million in tax revenue from the top 100,000 earners.
The paper is available here.