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August 25, 2010

Comments

Paddy M

Your original link (to 'far higher price') is missing.

Michael Taft

Thanks for that, Paddy M. I have corrected it.

Hugh Green

Thanks for this, Michael. I know it's wrong, but I'm looking at that 25bn increase in S.14+S.15 in 2009, and the 25bn decrease in S.13 for the same period, thinking 'how much of this correlation can we put down to causation?'

Radler

"If these estimates and proportions hold, then those at the higher end (at least when it comes to non-wage income) will have more than recovered and actually increased their income."

Michael don't you see that your conclusion follows immediately from your assumption that the gains from changes in the total unearned income will be constantly apportioned?

There's no reason to believe that deposits, dividends, rents and royalties will perform equally over the recession. On the contrary there is every reason to believe that they won't. Similarly there is no reason to believe that the different forms of unearned incomes are evenly distributed across the income deciles. For example small-time investors may be more likely to rely on deposit interest and buy-to-let rents, whereas high-rollers might have larger exposure to commercial rents and dividends.

Your line of reasoning smacks a little of ... if I assume I'll get the answer I want, then magically I'll get that answer. As long as my assumptions are reliable ;)

Tomboktu

Michael, may I suggest that you consider writing an op-ed piece for the Irish Times in response to the article?

WorldbyStorm

Radler, surely Michael has made it clear that not all of those on higher incomes are in clover.

Secondly, if we take your point about unearned incomes distributed being spread across income deciles (whether evenly or not) well, yes, but that doesn't contradict Michael's point either given that if they've lower incomes and faltering other incomes, then they're er... on lower incomes.

Which very slightly tangentially points to the reality that there's plenty of people who did unwise things financially in the last five or ten or fifteen years and came to depend upon revenue streams that were unsustainable - or put their trust in financial services that couldn't deliver.

Tomaltach

Good post. It seems to me that there is no question: in any recession those on low incomes and who have little or nothing in terms of a stock of wealth are going to suffer most. Fitzgerald's comment is wrong, pure and simple. I think your graph on job losses is the most stark reminder of where the pain lies. Having lost my job in late 2008, I understand the trauma of job loss.

The wealth distribution in Ireland is gross, no question. There are two ways to address this: the tax system and the structural factors in our society(elitism, education, inheritance, cronyism) which give rise to concentrated wealth.

The structural issues we can leave for another day. In terms of tax, the trouble is that when it gets discussed we hear one of two things: a) the rich are already highly taxed or b) the rich pay no taxes so lets apply more taxes. But in both cases people end up not really talking about the rich, but that broad spectrum of earners between say 40k and 100k. And in most cases the changes that are proposed kick in along these bands. The effective tax rate grows fairly progressively up to about the 100k point (when say for a single person it is around 40%) then it flattens here. Why? Many countries have banded rates much higher than that. The next problem is the reliefs - and to be fair the commission on taxation identified many sensible proposals there (and again the government avoided them). I'm thinking about pension, mortgage etc reliefs which, over time, should be seriosly reformed. Then there is the larger question of capital gains and corporation tax.

Another very worring development is the growth in indirect charges, effectively stealth taxes, which, along with our high proportion of VAT, hurt the progressivity in a serious way.

But certainly as it stands, the tax system is patently unfair and is begging for reform to make it much more just.

Michael Taft

Hugh - interesting observation, I missed that. It is certainly provocative. The EU/IMF 'bails-out' Greece: Greek workers get hammered and the shares of German/French banks (whose balance sheets were exposed to Greed debt) rose. Hmmm. The relationship between the assets of the state and those of high net-worth individuals is certainly one exploring. It may be opaque but that doesn't mean it isn't real and identifiable.

Thanks, Tomoboktu. I have, in other guises, been involved in submitting op-eds to several newspapers. To use a metaphor from my home country, my batting average is .090 (that wouldn't even get you a reserve place on a 4th division baseball team). But, I'll keep trying - on this and other issues.

Radler, I take your point. The problem is that all we have are assumptions because of the paucity of data on incomes and wealth (compared to other countries' national statistical compilation). That is why I tried to weave a number of data points together to paint a picture (the employment figures being the most current). What we are left with, given that each particular data issue comes with caveats, is a general picture. Is that picture reasonable? Or, more to the point, on the balance of probabilities which is more likely: that the rich have paid a far higher price or that their incomes and wealth will recover faster than the national average? I submit that it is the latter, but if you have data that throws some sceptical light on that, I'd certainly like to see it.

Just on the issue of income, the ESRI states that non-wage income (self-employment, capital & investment income, rents, etc.) will increase by 22% in 2011. Here is the proportion of that income by income deciles according to SILC in 2008:

1st (lowest): 0.9%
2nd: 1.7%
3rd: 2.8%
4th: 5.3%
5th: 6.0%
6th: 7.4%
7th: 9.6%
8th: 11.5%
9th: 13.6%
10th: (highest): 41.5%

Given the concentration of such income at the upper levels, I would submit that the recovery in non-wage income of the scale that the ESRI is estimating would have to disproportionately benefit the higher end. To what extent, of course, would have to wait for the data to come on stream.

Tomaltach, excellent points. I would certainly like to emphasise your contention that when many talk about the rich, what they are actually talking about is average to above average incomes, not the wealthy per se. Regarding tax, one small example which you refer to: mortgage interest relief. According to the Commission on Taxation, about €300 million (nearly 50%) of the cash benefit from mortgage interest relief goes to the top 20% income earners. Given that this grouping averaged €140,000 per year in 2008 (before tax), it is legitimate to ask whether this is economically efficient and / or social equitable. And I wouldn’t dismiss early action on some of the structural issues you identify – in particular, inheritances. This could be addressed through capital taxation (CAT). One could lower the thresholds substantially.

However, I fear that this Government is not likely to take the concerted actions which you are getting at. I also fear that the next Government won’t do so, either (not in any but a cosmetic way). I hope I am wrong but I live in a lot of fear these days.

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