The high marginal income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rates are “making it difficult for Irish businesses to attract and retain skilled workers. It also flies in the face of the shared aim of making Ireland a leading centre of design and innovation,” he said.
It may be surprising to Americans to hear that Ireland has pretty high taxes. We usually hear about Ireland’s tax system in the context of its corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate, which sits a low 12.5 percent, half the average rate of the OECD. We are led to believe that Ireland is a low-tax country in general.
In reality, Ireland’s tax code has some of the highest marginal tax rates, especially on income, in the OECD.
Ireland’s top marginal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate is 40 percent on individuals with incomes over 33,800 EUR ($36,236). On top of that, individuals need to pay payroll taxes of 4 percent on wages and other compensation. Ireland also has “Universal Social Charge,” which tops out at 8 percent (11 percent for self-employed individuals).
Altogether, the top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. in Ireland is 52 percent. The average top marginal income tax rate (plus employee-side payroll taxes) is 46 percent in the OECD. Not only is this rate high, it applies at a relatively low level of income ($40,174).
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Top Marginal Tax Rate, Income Tax + Payroll Taxes, Ireland 2015 |
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Individual Income Tax |
40% |
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Payroll Tax |
4% |
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Universal Social Charge |
8% |
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Top Marginal Rate |
52% |
The tax rate is also high on investment income. Capital gains are taxed at 33 percent, which is significantly higher than the OECD average of about 18.4 percent. Dividends are taxed at ordinary income tax rates of 40 percent plus the 8 percent Universal Social Charge (48 percent). This is also significantly higher than the OECD average top marginal tax rate on dividends of about 23 percent.
This is certainly one area that Ireland should address if tax competitiveness is its goal.
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