How far back?

Today’s release of the Q4 2010 Quarterly National Household Survey makes for grim reading.  Here will we consider the decline in the some of the main employment measures and how much of the Celtic Tiger growth has been given up.  These are non-seasonally adjusted figures.

First here’s total employment in the economy.

Total employment is now back to levels last seen in the middle of 2003. Employment peaked at 2.15 million in the middle of 2007.   Since then employment has fallen by 326,600 and now stands at 1.82 million.

This just gives the total numbers in employment.  Another issue to consider is the type of employment.  At the start of 2007, 82.6% of those employed were in full-time employment with 17.4% employed part-time.  The figures for Q4 2010 show that percentage of those employed in full-time employment has fallen to 76.8%, with a corresponding increase in the percentage part-time employed to 23.2%.

If we focus on the total numbers in full-time employment we find we have to back further than 2003.

Those in full-time employment is now back to a level not seen since 2000.  On the other hand the numbers employed part-time have never been greater as shown here.

Until 2007, the increase in the numbers part-time employed was because of an increase in female part-time employment.  Since then this has been largely unchanged and the increase in part-time employment since 2007 is because of increasing male part time employment.  Graph in here.

To finish we can look at the patterns in the numbers in full-time employment by gender .

It is evident that the drop in employment has been more severe among male workers.  The number of males in full-time employment was 853,000 in Q4 2010.  This is lower than it was in Q3 1998 when 868,900 males were in full-time employment.  At that time there was 71,000 unemployed males looking for full-time employment.  Now there are 199,200 seeking similar.

Male full-time employment is now back to 1998 levels.

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.

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.

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.

Effective Income Tax Rates

Since 1997 Income Tax Revenue rose on an almost annual basis from €5.5 billion in 1997 to €12.3 billion in 2008.

At the same time, however, the changes introduced in the intervening budgets saw the actual effective rate of income tax fall.

Using data from the Revenue Commissioners Annual Statistical Report shows that the effective rate of income tax applied to total gross income fell from 21.1% in 1997 to 13.5% in 2008.  These figures are derived from Table IDS1 from the Revenue’s Income Distribution Statistics and give the actual amount of tax collected as percentage of gross income.  If the 21% was applied to the 2008 gross income, tax revenue would have been €7 billion higher.

The statistics also allow us to examiner the effective rate on incomes in different ranges.  Here we will consider just three.

• Incomes under €25,000
• Incomes between €25,000 and €75,000
• Incomes over €75,000

The following graph gives the average effective rate applied to all gross incomes in these ranges.  It should be noted that these are not inflation-adjusted.  An income of IR£20,000 in 1998 (roughly equivalent to €25,000) would not be the same thing as an income of €25,000 in 2008 but we can use this to give a general guide to what has happened to effective tax rates to “low”, “middle” and “high” incomes.

For all categories the effective rate has fallen.  In percentage points, the biggest fall was seen in the middle category which fell by 14.9 percentage points from 25.0% to 10.1%.  The effective rate on low incomes fell by 13.1 percentage points from 14.2% to 1.1% – unless it was to turn negative it could not really have fallen by much more.  The smallest percentage point drop was seen for high incomes which fell by 10.5 percentage points from 33.2% to 22.7%.

In proportionate terms the biggest fall occurred for low incomes with the effective income tax now over 90% lower than it was in 1997.  For middle incomes the effective income tax rate is now 60% lower than it was in 1997.  The smallest proportionate fall was for high incomes where the effective rate is 32% lower than it was in 1997.

Here is the proportion of the total income tax paid by each income group.

This is not a true measure of the changing distribution of the income tax burden as part of the change is due to the change in incomes that has occurred since 1997.  A graph of the proportion of income earned by the three ranges used can be seen here.  A truer measure of the burden would to represent income deciles in the graph.  Maybe later.  The jump in 2001 is because this was a “short” tax year as the tax year was altered to comply with the calendar year. 

In 1997 incomes under €25,000 accounted for 44.1% of aggregate gross income and paid 29.7% of the total income tax.  By 2008, such incomes accounted for 14.6% of income and paid 1.2% of the total income tax.

Income between €25,000 and €75,000 made up 45.1% of the aggregate income and paid 53.4% of the total tax.  The proportion of incomes from this range was 48.2% in 2008 but the proportion of tax paid had fallen to 36.2%.

Earnings for the high income bracket accounted for 10.8% of total income in 1997 and they paid  16.9% of the total tax.  By 2008 these earnings accounted for 37.2% of the total but they now paid 62.6% of the tax.

Income Tax stats by group

The Revenue’s income tax distribution statistics allow us to compare across three groups – PAYE workers, self-employed workers and proprietary directors.  We have considered the first two in previous posts.  Click table to enlarge.

Here is the distribution of income by each category.

The distributions of PAYE and self-employed workers largely track each other, though it is noticeable that the distribution for self-employers workers has a fatter right tail (more higher earners).  The distribution of income of proprietary directors (directors of companies they own) is substantially different to the other two.  It has fewer lower earners and more higher earners.

It is important to note that the horizontal axis in these graphs is not to scale.  All points are equi-distant apart even though the absolute gaps increase.

Here are the average effective tax rates for each group.

The rates across all three groups are progressive.  Lower paid PAYE workers have the lowest average tax rate and the rate does not rise above zero until near €20,000.  However, top earning PAYE  workers have the highest average effective tax at 34%.  It is only at income above €100,000 that the effective tax rate on proprietary directors falls below that of PAYE workers. 

The effective tax rate on the self employed is lower than PAYE workers at all income levels above €30,000.   It should be noted that these rates are calculated based on gross income rather than taxable income.

Self employed and the Income Tax

In this post we consider the Revenue’s 2008 income distribution statistics for the self- employed.  As no table is directly provided on the self-employed, the numbers used are generated as the difference between those on Table IDS2 (self-employed including proprietary directors) and Table IDS7 (proprietary directors).  We use the same format as before.

Here are the the number of self-employed tax cases in each income bracket.

There 49,780 of these cases filed jointly where both partners were income earners so this table covers 228,986 earners.  In the self-employed category 11.3% had incomes greater than €100,000 compared to 4.0% in the PAYE category.  The proportion in the top range is significantly higher than for the PAYE group, 2.5% versus 0.2%.

Here is the income earned in each of these income ranges.

This group had an income of €10.1 billion or 11.1% of the total reported.  Nearly 24% of the income earned was done by the 2.5% of cases in the top income category.  The average income earned was €56,465, though if we account for double-income joint filings, the average income per earner is just €44,190.  The median income is around €32,000.

Next we turn to the tax paid across the income ranges.

This group paid 11.8% of the total income tax.  Within this group 42.6% was paid by the 2.5% in the top income category.  The bottom 54% of self-employed cases, earning €35,000 or less paid 4.3% of the income tax.

Finally we’ll look at the effective tax rates and average amount of tax paid.

Again the tax rates are progressive but it is interesting to note that the effective rates for high-earning self-employed people are lower than the equivalent rates for PAYE taxpayers.  The effective rate in the top income range here is 25.5% while it is 34.1% in the PAYE group.  However, the overall effective rate among the self-employed at 14.3% is higher then the equivalent in the PAYE group 12.5%.

The PAYE worker and the Income Tax

In a previous post we considered the distribution of income and income tax across all earners in the State using Table IDS1 from the Revenue Commissioner’s 2009 Statistical Report.  Here we use Table IDS6 for mainly PAYE incomes assessed under Schedule E (excluding proprietary directors on the Schedule E record) to carry out the same analysis.  In a subsequent post we will look at the self employed and proprietary directors.

Here is the number of PAYE tax cases.

There were just over 2 million PAYE income tax returns filed with the Revenue Commissioners in 2008. There 333,538 joint returns filed were both partners earned income so this table covers about 2.4 million people.

The distribution of incomes is largely similar to those reported in the total table (which is not surprising as these earners form such a large part of the total) but it is interesting to note that the right tail in this table is relatively flatter.  In the total table 5.4% of tax cases had an income of €100,000 or above.  In the PAYE sub-sample 4.0% of workers have such incomes.  The proportion in the top income range drops from 0.6% to 0.2%.

Here is the income earned in each of these income ranges.

There was around €71.5 billion of PAYE income in 2008 which is 78.7% of the total income reported.  The average individual income for all PAYE tax cases filed was €34,676.  The median income is somewhere around €26,000.  The average income in the top range was €480,000, which is lower than the €560,000 seen when looking at all tax cases.  These top cases earned 2.9% of the total income here compared to 8.1% in the total cases.

Next we turn to the tax paid across the income ranges.

Just under €9 billion of income tax was paid on the €71.5 billion of earned income.  The 51% of cases earning less than €27,000, with 19.7% of the income, paid 2.2% of the tax.  The 4% of cases reporting incomes of more than €100,000, with 17.6% of the income, paid 37.3% of the tax.

Finally we’ll look at the effective tax rates and average amount of tax paid.

For PAYE earners the tax system is progressive, with the effective tax rate rising through each income range from 0.1% to 34.1%.  The effective tax rate on those in the top income range here is higher than the 28.0% seen for all cases.   The income tax burden on those earning less than €20,000 was essentially zero and was just over €100 a month for those earning €30,000. 

It would take 1,178 people in the top income range to pay the same amount of tax 1,052,426 as those earning less than €27,000 but it would take 29,341 of the top earners (if they existed) to earn the same total income as this group.

Here is a graph that helps to illustrates these points.  This gives the proportion of cases, income earned and tax paid across seven income ranges.  Watch the navy and maroon disappear in the “Income Tax Paid” bar while the lilac becomes ever more evident.

Who pays the Income Tax?

The Revenue Commissioners have released the “Income Distribution Statistics” section of their 2009 Statistical Report.  This part of the report gives details of income and income tax payments across the income distribution.  The 2009 Report gives the figures for 2007 and 2008.  We will look at the 2008 figures here with these details taken from Table IDS1 on page 31.

First up here is the breakdown of the number of tax cases in each income bracket.

In 2008 the Revenue Commissioners handled over 2.3 million tax returns.  Of these, 432,058 were joint returns by couples with two earners, so the number of earners is actually over 2.7 million.  There were 379,541 returns from couples with one earner and 1,521,624 individual tax returns.

It is also important to note that this total included all income earners and not just those in employment.  The income range with the greatest number of cases is €0 - €10,000 which accounts for nearly one-fifth of the total number of cases.  This is may include part-time workers but also non-workers with a source of passive income (interest, dividends, rent etc), particularly retired people.  The CSO’s QNHS suggests that there was an average of 2.1 million in employment during 2008, though some people could have entered and left this total as the year progressed.

Here is the income earned in each of these income ranges.

In 2008 there was €90.8 billion of earned income declared to the Revenue Commissioners.  The pattern of the average income and cumulative average is as would be expected.  Tax cases in the “over €275,000” range make up 0.6% of the total number of cases and earn 8.1% of total income.  These cases reported an average income of over €560,000.

Next we turn to the tax paid across the income ranges.

There was a total of €12.2 billion of income tax paid on the €90.8 billion of income earned.  The 0.6% of tax cases in the top income category, with 8.1% of the income, paid 17.5% of the total income tax.  The 54.0% of cases below €30,000, with 26.7% of the income, paid 5.0% of the total tax.

Finally we’ll look at the effective tax rates and average amount of tax paid.

The Irish income tax system is progressive across all income ranges.  The highest effective tax rate of the 28.0% paid by those in the top income category.  Across all incomes the average income tax rate is 13.5%.  Again it is important to note that this is not the average tax rate on workers as all earned income is included in this total.

The very low rates of tax on incomes below €20,000 can be seen.  Incomes in the “€17,000 - €20,000” range faced an effective tax rate of 0.66% and paid an average of €121.44 in tax or €2.34 per week.  Earners in the top income range faced the 28.0% effective rate and paid an average of over €157,000 in tax – just over €3,000 per week.  There is a 30-fold difference in the average income earned in these categories and a nearly 1,300-fold difference in the amount of tax paid.

In 2008 a tax case in the “€30,000 to €35,000” faces an effective tax rate of 5.8% and paid an average of nearly €1,875 in tax for the year.  If this is a family with two children they will have collected €3,888 in Child Benefit.  The State will have given them more in income than it collected from them in income tax. 

This gap would have narrowed since 2008 with reductions in Child Benefit and changes to income tax bands and credits and the introduction of the Universal Social Charge.  It is also important to note that this analysis only includes income tax and ignore social insurance contributions (PRSI) and indirect taxes (VAT and Excise Duty).

A spreadsheet with that data used in this post is available here.