Labour’s fair tax plan will abolish USC for low and middle income earners
Labour’s fair tax plan will deliver for low and middle-income workers by abolishing USC on the first €72,000 of individual income and reducing PRSI for the lowest-paid workers. The plan will put more than €1,100 a year back in the pocket of a worker on €25,000, while ensuring someone earning €120,000 or more continues to pay precisely the same taxes as they do now.
Labour Party Ministers Brendan Howlin and Alex White published details of the plan at the party conference in Mullingar this evening [Friday 29th January 2016].
The key features of the plan will see:
- · USC abolished on the first €72,000 of individual income over the lifetime of the next government;
- · A targeted PRSI reduction for low-paid workers so that they’ll benefit from both PRSI and USC reductions; and
- · A claw-back mechanism that will progressively reduce the benefits of the USC changes for the highest-paid workers.
Minister Howlin said: “In Government, Labour has stood up for working people by removing 700,000 people from the USC net and reducing it for low and middle-income workers. Now, building on the progress made to date, we have a sensible and affordable tax reform plan to completely abolish USC for low and middle-income workers. Our plan has been progressively designed to ensure the taxes of someone on €25,000 a year are reduced by a third, while someone earning more than €120,000 will not receive any reductions.”
Minister White said: “The USC was a savage tax introduced by Fianna Fail at the height of the crisis, with no regard for the effect it would have on low and middle-income workers. Labour will stand up for working people by ensuring low and middle-income workers will gradually be freed of this penal tax. At the same time, by ensuring the wealthiest in society continue to pay their fair share, we will ensure resources are available for investment in essential services such as schools, childcare and healthcare.”
How the plan works:
Step one: Abolish USC for low and middle-income workers.
USC will be abolished on the first €72,000 of individual income. As a result, upon completion of the plan:
- · Someone on €25,000 will pay €668 a year less in USC
- · Someone on €50,000 will pay €2,043 a year less in USC
- · Someone on €72,000 will pay €3,302 a year less in USC
Step two: Top-up low-paid workers.At the moment, a worker pays full PRSI once they earn €424 or more a week. We will change this to lower PRSI on income up to €704. As a result, upon completion of the plan:
Someone on €25,000, in addition to their USC reduction of €668, will see their PRSI lowered by €464, meaning they will be a total of €1,132 better off a year.
Step three: Cap the gains for higher-earners.
Those earning between €72,000 and €100,000 will see their USC gains capped at €3,302 a year.
Step four: Progressively claw-back the gains for the highest earners.
There will be a claw-back mechanism that progressively reduces the USC gains for those earning between €100,000 and €120,000. Anybody earning over €120,000 will continue to pay exactly the same tax as they pay now. The claw-back mechanism will involve the withdrawal of personal tax credits on a phased basis.