Wednesday, 8 December 2010

A Merry Christmas for plutocrats

Tom McDonnell: TASC will be releasing a full budget response tomorrow. In the meantime feast your eyes on some good news for all of you single, non-PAYE workers on €200,000 or more. I have followed the Government’s practice of assuming a 6% pension contribution. You can do the calculations yourself using the deloitte tax calculator. See table below the fold, and click to enlarge.


Rory O'Farrell said...

Do you know which budget change is driving this?

Tom McDonnell said...

The Universal Social Charge (USC) is higher than the combined health levy and income levy for earners on circa less than 75,000. The gap is generally largest for those on low incomes (the relationship is non-linear).

Above 75,000 the combined impacts of the health levy and the income levy are larger than the impact of the USC. The gap increases as income increases.

Once we hit approximately 201,000 this gap starts to become larger than the proposed increase in PRSI. Thus individuals earning more than this amount actually make money from the proposed changes (see example 10 in the Annex to the Summary of 2011 Budget Measures)

Nat O`Connor said...

Rory, Tom,

To spell this out a little more. It is because self-employed people did not have a PRSI ceiling before this budget. Therefore they paid income levy (up to 6%), health levy (up to 5%) and PRSI (3%, 'Category D'). This totalled up to 14% of their eligible income.

Now, they will pay up to 7% Universal Social Charge plus 4% PRSI, totalling up to 11%. Hence, self-employed people on very high incomes will pay less tax due to this budget.