The middle class’s tax trap: many pay nothing, many pay little, and few pay a lot

Around half of Italians – 24.8 million people – do not declare their income and do not pay tax; around 70 per cent of taxpayers – those with an annual income of up to 29,000 euros – pay only 21 per cent of total personal income tax (IRPEF); whilst those declaring a gross income of 35,000 euros or more – that is, 19 per cent of taxpayers – contribute around two-thirds (65 per cent) of total personal income tax revenue. Taking into account those with incomes between 29,000 and 35,000 euros (11 per cent), 30 per cent of taxpayers pay 79 per cent of personal income tax. All the newspapers, and the media in general, have given due prominence to the figures presented by the Osservatorio Itinerari Previdenziali on the 2024 tax returns, which show, in cold, hard numbers, the distribution of the tax burden: a large number pay nothing, many pay very little, and then there is a group of ‘the rich’ – the bracket declaring over 35,000 euros a year (i.e. from around 2,000 euros net per month) – who are being squeezed like a lemon. This snapshot is useful for examining, on the one hand, what has happened to personal income tax (IRPEF) so far and, on the other, what will happen in the coming months and years. Looking back, the €35,000 threshold identified by Itinerari Previdenziali acts as a sort of watershed. Quite by chance, this is the same threshold identified by a recent study by the Parliamentary Budget Office (UPB) on the evolution of personal income tax from 1990 to 2026.

Over the past 36 years, in fact, various tax reforms have profoundly transformed the IRPEF: “From a moderately progressive tax on income from employment, the system has evolved into a markedly progressive one, characterised by strong support for lower incomes and a growing tax burden on higher incomes,” writes the independent body in the study by Stefano Boscolo, Corrado Pollastri and Lorenzo Toffoli. There is indeed a threshold that separates the winners from the losers: 35,100 euros. Below this figure, taxes have fallen; above it, they have risen. 

Although the number of tax bands has decreased, contrary to what one might mistakenly assume, both the progressivity and the redistributive capacity of personal income tax (IRPEF) have increased since 1990. For incomes between 8,000 and 30,000 euros per annum, “the effective tax rate is significantly lower than that of 1990”, writes the UPB in its study entitled “Wage dynamics and the role of personal income tax”. Meanwhile, for incomes above 35,100 euros (at 2026 prices), personal income tax has become “more burdensome”: “The reforms (the most significant being those of the Renzi, Meloni and Berlusconi governments, ed.) have progressively concentrated tax relief on the lower-middle end of the income distribution, whilst for middle-to-high incomes, the tax burden in real terms has increased, mainly due to the tax drain”.

Coincidentally, the threshold of 35,000 euros per annum is the figure that the Meloni government had identified as the upper limit for qualifying for the generous social security contribution relief (6 percentage points), which was subsequently incorporated into personal income tax (IRPEF). Overall, considering this parliamentary term alone, the economic policy of Meloni and Giorgetti has followed this trend: Lower-to-middle incomes have benefited and have been more than compensated for the fiscal drag – as shown by data from INPS, the Bank of Italy and the ECB – almost to the point of recouping the full impact of inflation on net income; whilst upper-middle incomes (above 35,000–40,000 euros) have been penalised, that is to say, they have faced an additional burden, mainly as a result of the fiscal drag.

Everyone now claims to agree on cutting taxes for the middle class, but that is not the case. During the Draghi government, which abolished the 41 per cent tax rate (for incomes of 55,000–75,000 euros) and reduced the rate in the third tax bracket (28,000–50,000 euros) from 38 to 35 per cent, the CGIL union lashed out against a reform it claimed favoured the ‘rich’. When, last year, the Meloni government cut the tax rate from 35 per cent to 33 per cent for the 28,000–50,000 euro bracket, the opposition railed against “a gift to the wealthiest” (Bonelli, AVS); “a measure that increases inequality” (Boccia, PD); “this meagre change to personal income tax benefits the wealthiest households by 85 per cent”; “70 per cent of workers and pensioners gain nothing from it” (Landini, CGIL).

This brings us to the second point: the future – the immediate future, that is. In a few weeks’ time, the debate on the Budget Bill will get into full swing, and amongst the proposals on the government’s table is a rise in the threshold for the second tax bracket from 50,000 to 60,000 euros, which would mean that the 33 per cent rate would apply to these 10,000 euros instead of the 43 per cent rate. It is a proposal that the centre-right has been putting forward for a couple of years, but which it shelves every time due to a lack of resources and political will. It is easy to predict what the reaction will be when it is included in the next Budget Bill: ‘The government is cutting taxes for the rich’. This is how many newspapers will run their headlines – the very same ones that today denounce the tax burden on the middle class. Yet it is still those 8 million Italians – that 19 per cent of taxpayers earning more than 35,000 euros – who pay 65 per cent of personal income tax and who, since 1990, have seen the tax burden on them rise steadily.