Squeezing the Middle

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sq_middle2So the Government wants to give relief to the squeezed middle.

‘Taoiseach Enda Kenny has said easing the tax pressure on the “squeezed middle” will be a priority in the upcoming budget.’

The very first question is:  who exactly is the Taoiseach referring to?  The squeezed middle is an amorphous and infinitely elastic concept that can apply to just about anyone you want it to.  Let’s try and get a handle on this much-talked about but rarely defined group using the latest Revenue Commissioners statistical report.

Let’s define the squeezed middle as the middle 60 percent – between the lower and upper 20 percent group.  Remember, this doesn’t refer to everyone, just those in the workforce.  It excludes those without a job (pensioners, the sick and disabled, the unemployment, lone parents, etc.).

income_range

We can see that, according to the Revenue distribution tables, the middle 60 percent of earners have incomes between €8,700 and €51,300.  However, there is a big caveat here.  Couples where both spouses and civil partners are working are counted as one tax unit.  This means that while in the tables, a tax unit will show an income of €60,000 – this actually means the combined income of two people.  So they may both be earning well below the average income.

We can adjust for this but we have to make assumptions.  To breakdown the one tax unit where there are two people working, I assume that one spouse / civil partner earns 60 percent of the total, while the other earns 40 percent.  When this is done, the revised income range looks something like this.

revised_income_range

This is just an estimate (other might come up with slightly different numbers, working with this data – but it won’t change all that much).  However, looking at the two charts there are three striking things:

  • First, there are many in the squeezed middle that earn very little.  They will be low-paid, part-time, and underemployed (or precarious workers).
  • Second, those earning over €42,400 are in the top 20 percent   (€51,300 using the unrevised chart)
  • Third, between 64 and 73 percent of those in the squeezed middle (depending on which chart you use) are taxed at the standard rate, the marginal rate or are exempt.

A substantial number of the squeezed middle do not earn enough to pay income tax or earn below the top tax rate threshold – so any income tax cuts, never mind cutting the top rate of tax, will have no impact whatsoever.  Is this the group that the Taoiseach is referring to?

If so, then tax cuts are not the first thing you would do to relieve the squeezed middle.  You would raise the minimum wage, extend and strengthen the Joint Labour Committees, roll-out affordable childcare, raise the medical care eligibility thresholds, start subsidising prescription medicine, lower the costs of education (free school transport, centralise and reduce schoolbook costs), increase the subvention to public transport to both expand services and reduce the fares – there are many other stops you would make before you even consider tax cuts.

But I doubt that this is the group the Taoiseach is referring to.  And this leads us to a more general observation.  The squeezed middle is a politically constructed concept; it is used to justify the policies you are intent on introducing.

However, to do this you must not quantify this construct.  You make up a name, let everyone subscribe their own values to it, and go on your merry way to cut any ol’ tax you want.  The last thing you want to do is muddy the waters by putting numbers on this concept or to differentiate the different households in this amorphous group (a single person with no children earning €50,000 is in a much different place than a couple with two children on this same amountsimilarly, a retired couple on €50,000 with no child costs or housing payments are in a different place than a couple with children and mortgage payments – but all are treated the same in the universe of the squeezed middle).

So in the name of helping the squeezed middle the Government intends to introduce tax cuts that primarily benefit higher earners; tax cuts that do not and cannot by definition impact on most of those in the squeezed middle.

And what the squeezed middle really need will not be forthcoming – redistribution, expanded public services, stronger income supports.

If you try to argue this from evidence you will miss the overall point:  for Government policy is not about relieving the squeezed middle but rather using it rhetorically – to justify policies that do little to provide relief.

So you have been warned.  When Budget 2015 is published, don’t read it standing up – you’re likely to fall down from all the spin.  Best to sit down.

 

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