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The temptation of Odysseus

Posted on March 21, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

In the ancient Greek epic poem Odyssey, the ship of Odysseus sails past dangerous rocks as his ears are tortured by the sweet song of the Sirens.  This song drove Odysseus mad with desire, and his sailors had to tie him to the ship rail, prohibiting him from giving in to temptation.  If it were not for this the ship would have crashed on the rocks. Picking on this story during a recent address I gave here, I suggest that all talk of income tax cuts (as distinct from tax reform) is a dangerous form of modern day political temptation for the following reasons:

  • Tax-cutting during an on-going period of fiscal adjustment is highly questionable when the government deficit is still in excess of 3%
  • The evidence reviewed by OECD and other analysts is underwhelming concerning the claimed growth impacts of cutting income tax.
  • Cutting taxes and removing people from the tax net undermines the goal of excellent public services.
  • And it undermines the goal of an equitable, balanced and inclusive income tax system.

I suggest that when it comes to cutting taxes everyone remain tied to the ship’s rail for the foreseeable future.

How about a national car bumper sticker campaign saying:

I love Universal Social Charges to pay for OUR public services.

The beauty of USC is that

  • it applies to many different kinds of income
  • it is not riddled, to the same extent as ‘income tax’, with all sorts of reliefs and exemptions
  • it is reasonably simple to understand and operate.

Perhaps there is a case for abolishing income tax as we know it, replace it with USC, make the rates more progressive (e.g. by introducing three or even four bands) and then re-term it as ‘income tax’!

However, it is not in the areas of USC or income tax – as we know it – where Ireland is out of step in Europe. It is in the area of social insurance where our contribution rates are among the lowest.

 

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