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Marginal and Effective Tax Rates

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This chart analyses the progressiveness of the Irish income tax system based on 2009 rates. It shows the effective and marginal tax rates (combining income tax, the health and income levies and PRSI) for taxable incomes from zero to €1 million in €10k jumps for 2009. The only credits taken into account related to marital status so the rates depicted at each income level are maximums. Note that the overall rates takes account of the mix of single and married income tax payers at each income step based on Revenue data for 2005 - this wouldn't have changed much since then.

Notable features include:

  • the slope of the red line signifies the progressiveness of the tax system - very progressive up to about €60,000, moderately progressive up to €200,000 and much less progressive thereafter.

  • the rapidity of the increase in overall effective rate from €20k up to €80k. The overall rate tapers off thereafter and effectively flatlines at about €500k.

  • the erratic growth in the overall marginal rate at quite low incomes before it settles down at 52%. The saw tooth jumps are attributable to interactions between the different bands and rates. What the marginal rate graph does NOT show is the way in which marginal rates rise extremely rapidly for singles and one-income married.

  • top marginal rates can be hit very early with a single earning €60,000 paying at 51% in contrast to a dual earning married couple earning €1 million and paying tax at 52%.

  • the huge differences in effective tax rates for singles, married (one income) and married (dual income) particularly at low incomes.

This analysis takes no account of the fact that high earners, by virtue of having discretionary income, can reduce their effective tax rates very substantially by tax planning and availing of tax breaks with the result that people earning between €60,000 to €120,000 (my guesses) could be paying the highest "real" effective rates. I intend to discuss this issue in more detail in a future post.

We will update the chart late next week to take account of the budget for 2010 so bookmark us, subscribe to our RSS feed or follow us on Twitter.

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About this Entry

This page contains a single entry by Brian published on December 4, 2009 5:49 PM.

Paying for the Boom was the previous entry in this blog.

Mental Reservations and Mature Reflection is the next entry in this blog.

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