Irpef, hypothetical rates 23, 35 and 43: who gains and who loses with the new tax

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The Irpef reform projects immediately trigger the inevitable question: who gains and who loses? The answer, to try to be serious, must start from two warnings. First: the one approved by the government is an enabling law, which indicates the guidelines of the reform but does not deal with the fundamental application junctions such as the level of the rates, subject matter of the implementing decrees. Second: when the rates change, the curve of deductions for family and work burdens also changes, and the final result depends on both factors.

In which direction is delegation going?

That said, you can try to go beyond the delegation to understand the direction that the new tax authorities are trying to take. In terms of personal income tax, the Flat Tax for everyone remains the basic objective, inevitable given the political majority that supports the government as it is indeterminate in terms of time and coverage. The intermediate step appears more concrete, that reduction from four to three rates that the MEF has been studying for years while the brackets have already been reduced from five to four with the Draghi government’s budget law.

There are more than one technical hypotheses on the table. The one that seems to have the greatest admirers in the government merges the first two brackets by extending the 23% rate up to 28 thousand euros of gross annual income, which today stops at 15 thousand euros to rise to 25% on higher incomes. The rest of the Irpef panorama would remain unchanged by asking for 35% between 28 thousand and 50 thousand euros and 43% above.

Low-cost intervention

The first advantage of this intervention is the overall reduced cost, and calculated by the Ministry of the Economy in the order of 3-4 billion. As can be guessed, the most immediate direct benefit would go to incomes between 15,000 and 28,000 euros, which today occupy the second bracket and falling into the first bracket would see the tax cut by two points. As always happens when an intervention is made on the income tax curve, the effect would also extend to the higher brackets who would feel the discount on the income bracket affected by the rate change. In absolute value, from 28,000 euros upwards, the effect would be the same for everyone (260 euros for equal deductions); but in percentage terms the discount would decrease as income increases. With the consequence, already experienced with the mini-reform at the end of 2021, that the promoters of the reform will underline the percentage discount to defend its progressivity, while the enemies will evoke the value in euros to evoke its regressiveness.

“Horizontal” equity

But beyond this debate already seen, the real impact of the reform on the life of taxpayers and on the overall balance of the system will depend on various variables. The lowest incomes, as usual, watch the reform game from the side stands, because today they already have zero or almost zero taxes depending on actual earnings.