Irish Business Leader Calls for Income Tax Reform

March 10, 2015

At a conference, the CEO of the Irish firm Ibec called for Ireland to lower its income tax rates to be closer in line with the rest of the developed world.

The high marginal income tax 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 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 tax 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 rate 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).

Top Marginal Tax Rate, Income Tax + Payroll Taxes, Ireland 2015

Individual Income Tax

40%

Payroll Tax

4%

Universal Social Charge

8%

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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