The 'Little People' and Taxes

national | rights, freedoms and repression | opinion/analysis Saturday October 23, 2004 16:44 by Michael Hennigan - Finfacts.com

More than a decade ago, Leona Helmsley*, New York’s ‘Queen of Mean’ famously said that ‘only the little people pay taxes.’ She could have been talking about Ireland and yesterday’s announcement that 11 millionaires paid zero tax legally, can only add to the perception of inequity in our society.

A quarter century ago, two of the largest public events in the history of Ireland took place. In March 1979 an estimated 200,000 workers marched through the centre of Dublin in protest against a tax system where penal rates were levied on average earnings while wealthy people paid little or no tax. In 1978 PAYE had accounted for 87% of all tax and in the 1979 Budget the Fianna Fáil Government introduced a 2% levy on the value of farm produce. It was vigoursly resisted by the Irish Farmers’ Association and the Government caved in and withdrew the measure.

In 1974, the Fine Gael-Labour Coalition Government announced planned to introduce 3 new capital taxes and farmers were brought into the income tax net for the first time. At a football game in Croke Park between Dublin and Kerry, a Dublin supporter held up a placard with the slogan- ‘Come on the Taxpayers.’ It was a time when most self-employed were fiddling taxes on a massive scale. Doctors, dentists, solicitors and so on, were reporting income, which suggested that they were living at subsistence level.

In 1974, an individual could trouser any level of money from the sale of a business and not be liable for a penny in taxes. When Minister for Finance Richie Ryan announced that he would introduce capital gains tax, capital acquisitions tax (gift tax) and a wealth tax, there were howls of protest. The taxes would not be enacted until 1975 and it was an opportunity for some to sell their businesses without delay. It was for example likely an issue with the shareholders of the Irish Times who cashed in their investments and converted the operation into a tax-free charitable trust.

Apart from wealthy people reporting negligible income, there were many individuals who never had paid taxes. The Revenue Commissioners dispatched teams around the country to log business establishments on a street-by-street basis.

In 1979, Labour T.D. Barry Desmond said the following in the Dáil : ‘I had a most interesting reply to a question I posed in the past week to the Minister for Finance. In that reply the Minister gave the number of returns of individuals who were assessed to wealth tax. It is enlightening to recall that in 1975 there were 1,170 people in the country who made returns of up to £250,000; there were 257 persons who made returns of up to £500,000 and 60 persons who made returns of over £500,000. That was the range of taxable wealth under the wealth tax system. It is no wonder they screamed blue murder when they had to pay £1,000 out of £500,000 in tax—a miserable £1,000 tax levy, which is about, on average, all they had to hand over.’

The disclosure yesterday that 11 millionaires paid zero tax legally in 2001, shows that the wealthy can still avoid tax by hook or by crook!

The Revenue provided figures, which show that 41 Irish tax residents who earned over €500,000 in 2001, paid no tax.

The information was provided in an answer from the Minister for Finance to a parliamentary question from Labour Party Shadow Finance Minister Joan Burton T.D.

Eleven of the 41 declared incomes of over €1m for tax purposes, and yet had a zero liability to tax.

Joan Burton said: 'An analysis of these figures show that 242 people with earnings from €100,000 to €1m had a zero percentage rate of tax for the 2001 tax year, while a further 149 paid an effective rate of tax of 20% or less. This means that some 391 of the highest income earners in the country either paid a zero rate of tax or a rate of less than 20%. The figures are a truly astonishing indictment of the range of tax loopholes and avoidance measures which had been built up during the McCreevy years and which allow many of the most wealthy in Irish society to avoid tax,' she added.

The figures from 2002 until at least 2007 will continue to show that very wealthy people either pay no tax or at a reduced rate.

The main tax break availed of, relates to investment in property in what are termed 'designated areas'; new hotels; student accommodation, nursing homes and holiday home developments. Investors are allowed to reduce tax on rental income by offsetting the investment amount in property against the rental income, over a 7-year period.

The original scheme was introduced in the mid-1980's to promote investment in run-down areas in large urban areas such as Dublin and Cork. It was extended to hotels, holiday homes etc in subsequent years.

It became a 'pork barrel' for local politicians to have the scheme available for their areas and during the Celtic Tiger boom, the tax breaks were available although investments would have taken place on economic grounds alone.

For example, what is the justification for giving wealthy investors in the Four Seasons Hotel project personal tax breaks?

Developers in Dublin have been able to get a price premium on apartment prices of more than 20% where a project had the tax break. In the Dublin 7 area, where there were both tax incentive projects and projects without the tax break, it was easy to see from the prices of comparable apartments, that developers were able to sell at a higher price because of the tax inducement.

The breaks were to be discontinued in 2004 but the deadline was extended to mid July 2006 by Charlie McCreevy, the last Minister for Finance, after extensive lobbying.

*(A slapper, who had married a wealthy property mogul, Helmsley had been charged with tax fraud and became a byword for miserliness when it was reported that following the sudden death of her only son at age 40 in 1982, she sued and won $149,000 from her son's estate, leaving his four children with $432 each and his widow with $2,171. She even charged her daughter-in-law the cost of transportation of her son’s casket. Helmsley inherited a fortune of $1.7 billion in 1997 on the death of her husband.)