How much Tax do people really pay?
Too often considerations of the taxation system are focused on income taxes, or income related taxes like social insurance; a narrow perspective given the composition of taxation revenue received by the exchequer. Indeed, the oft-cited phrase ‘taxpayers’ is generally taken to mean income taxpayers rather than its more appropriate meaning of all those paying taxes – whether from income, expenditure or other contributions.
A new research paper by Dr Micheál Collins of the NERI examines how much tax people ‘really’ pay. It uses data from the most recent Household Budget Survey to bring together information on the total amount of direct (income tax and social insurance payments) and indirect (VAT, excise and levies) tax paid by people in the Republic of Ireland.
Key Points
• On average Irish households pay 13.60% of their gross income in direct taxes (income and social insurance) and 10.36% in indirect taxes (VAT, excise and levies).
• The direct income taxation system is progressive – as income increases more tax is paid as a % of gross income.
• The indirect taxation system is regressive – as income increases less tax is paid as a % of gross income.
• Overall, three deciles contribute taxation to the exchequer at above the average level – the top two deciles and the bottom decile.
• This gives a U-shape to the overall household tax contribution curve – households at the bottom and top of the income distribution contribute the most, with contributions as a percentage of gross income declining to their lowest points in the third, fourth and fifth deciles and then increasing after that towards the top decile.
Linked NERI Working Paper
This NERI Research inBrief summarises an accompanying NERI Working Paper which provides further details on the papers data, methods and calculations. The paper is available on the institute’s website and its reference is:
Collins, M.L. (2014), ‘Total Direct and Indirect Tax Contributions of Households in Ireland: Estimates and Policy Simulations’ NERI Working Paper, 2014/18. Dublin, NERI.