Category Archives: economics

Over-taxed but under-“taxed”

Even if we ignore consumption taxes, I’m not sure it matters to the person paying whether it’s income tax they’re paying or other forms of levies such as income or health. Ultimately, they all go into the pot and reduce take-home pay.
I calculated % total deductions from gross income for salaries from 10k to 140k.
I based my calculations on
http://www.hookhead.com/Tools/tax2010.jsp
It’s far from linear. The steepest rises occur between about 15k and 45k. Someone on 20k a year for example pays 6.38% of deductions. Someone on 50k pays 28.86%. A whopping >22% increase.  Now if we compare another 30k band 80k (@ 36.48%) to 110k (@ 40.23%) we see that the percentage change in deductions is much less i.e. those on middle-ish incomes benefit less from increases in their gross salaries whereas those earning multiples of the industrial wage have more incentive to earn more.
This is effectively regressive even if it isn’t technically so as there’s an ever decreasing increase in the total deductions as you earn more. When I have the time I’ll calculate the changes in these deductions over time. I believe that the austerity budgets have and will make it even less worthwhile for the average joe to work harder and increase their income unless they can jump the income gap into the “well off” camp.
So I don’t believe it’s the case that people aren’t paying enough tax (even though the gov will try to extract blood from stones). However a flat tax rate would incentivise the middle incomes to earn more, may result in increased productivity, create a more just tax system and could coincide with more cost-efficient and streamlined processing of taxes, social insurance and levies.Even if we ignore consumption taxes, I’m not sure it matters to the person paying whether it’s income tax they’re paying or other forms of levies such as income or health. Ultimately, they all go into the pot and reduce take-home pay.
I calculated % total deductions from gross income for salaries from 10k to 140k.
I based my calculations on
http://www.hookhead.com/Tools/tax2010.jsp
It’s far from linear. The steepest rises occur between about 15k and 45k. Someone on 20k a year for example pays 6.38% of deductions. Someone on 50k pays 28.86%. A whopping >22% increase.  Now if we compare another 30k band 80k (@ 36.48%) to 110k (@ 40.23%) we see that the percentage change in deductions is much less i.e. those on middle-ish incomes benefit less from increases in their gross salaries whereas those earning multiples of the industrial wage have more incentive to earn more.
This is effectively regressive even if it isn’t technically so as there’s an ever decreasing increase in the total deductions as you earn more. When I have the time I’ll calculate the changes in these deductions over time. I believe that the austerity budgets have and will make it even less worthwhile for the average joe to work harder and increase their income unless they can jump the income gap into the “well off” camp.
So I don’t believe it’s the case that people aren’t paying enough tax (even though the gov will try to extract blood from stones). However a flat tax rate would incentivise the middle incomes to earn more, may result in increased productivity, create a more just tax system and could coincide with more cost-efficient and streamlined processing of taxes, social insurance and levies.

Was reading Ronan Lyon’s excellent blog today and it occurred to me that perhaps his comments on income tax are only part of the picture.

Even if we ignore consumption taxes, I’m not sure it matters to the person paying whether it’s income tax they’re paying or other forms of levies such as income or health. Ultimately, they all go into the pot and reduce take-home pay.

I calculated % total deductions from gross income for salaries from €10k to €140k.

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Skin in the game – why banks are blowing up

King of the Quants, Paul Wilmott, has a great blog post on his very popular site about the current financial crisis. If you’re wondering how popular a site about quantitative finance can be then consider there’s about a 65,000 subscribers engaging in debate (some heated, some light-hearted & some perhaps ridiculous) on his forum.

Wilmott is the author of the authoritative textbooks on the subjects relating to financial modelling of derivatives. So you’d be thinking “it’s all his fault” and you’d be wrong. In his writings and courses you’d be hard pressed to find a “rocket scientist” more skeptical of the limitations of risk management using financial models. Unless you happened to be Naseem Taleb but that’s another story. Continue reading

Definitions for the novice investor

I’ve been reading Liar’s Poker recently and it’s given me a better understanding of how market’s don’t work. To save time for novice investors I’ve created a few helpful definitions to guide them in their investment choices. In no particular order:

Bank – the generic term for an organisation that seeks to profit by controlling the flow of money.

Market – a mechanism to exploit the foolishness gap (often slim) between someone who has the means and desire to buy something and someone who knows what it’s worth. Innovations in the market have effectively rendered the “means to purchase” an outdated concept. Markets have the trappings of formality and the veneer of structure.

Risk Management – The process of substituting a relatively reputable product like insurance for bonds of indeterminate risk with the objective to save money over a specified term. Continue reading