Irish Corporate Taxes: Bring It On
John McCain offered an unusually specific argument at the debate on Friday in favor of his plan for a reduction in the corporate income tax rate, specifically citing Ireland as an example of a low tax jurisdiction we should emulate:
The trouble, as is fairly well-known, is that the US corporate income tax is so loophole ridden that you can’t just look at the nominal rates. Its true that the Irish corporate tax rate of 12.5 percent (not 11 as McCain said) is lower than the rate in the United States. But as Igor Volsky observes at the Wonk Room, Ireland actually collects substantially more revenue from its corporate income tax: “In the United States, corporate revenues as a percentage of GDP was about 2.2 percent; Ireland raised close to 4 percent.”
In short, Ireland really could be a model for successful reform in the United States; reform that would be aimed at growing the tax base by closing loopholes and, in exchange, lowering the rate. That would, if calibrated correctly, both boost economic growth and efficiency somewhat and also increase tax revenues. But a simple across-the-board rate cut would accomplish nothing of the sort. What’s needed is real coherent reform along the lines of what was undertaken in the mid-1980s.
38 Responses to “Irish Corporate Taxes: Bring It On”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
September 29th, 2008 at 11:03 am
The other issue is something that Paul Krugman should know very well. It’s geography, economic geography that is. Small countries at the peripheries of the core economies have to have lower corporate taxes so that they can attract business. Big countries at the core, don’t. This are the benefits of conglomeration.
It’s the same reason New York has more taxes than Nebraska and yet more people flock there.
September 29th, 2008 at 11:05 am
when i heard him say that my immediate thought was, but what about ireland’s personal income tax rate? isn’t it higher than the US?
September 29th, 2008 at 11:15 am
OTOH, what Igor Volsky observes is a bit unfair. Ireland is a tiny economy which has experienced a boom in the past 20 years, mostly by American business relocating their operations in an English speaking country with low corporate rates in a good geographical position which serves as a link between the US and Europe. The effect of so many US businesses moving there swelled the Irish economy and made a big chunk of its GDP. That’s in all probability the reason the income from corporate taxes is higher than the much bigger US economy.
Again, understanding the role geography plays invalidates McCain talking point, but what Volsky says isn’t entirely accurate either.
September 29th, 2008 at 11:15 am
I’d be quite hesitant about holding Ireland up as some kind of fiscal pro-business wonderland. We are now officially in recession, and the largest problem facing the Government is a massive shortfall in tax receipts, a crisis that has increased exponentially in the last year. It’s also worth pointing out that we have some of the worst, and most poorly funded, public services in the European Union.
It’s also germane to consider that Ireland’s low corporate income tax was a reform undertaken so as to differentiate it from other European countries in terms of competing for American business. And it was implemented in the context of massive investment by the EU in Irish infrastructure – so there was no real downside, even temporarily, to lowering the rate. There are, furthermore, a multiplicity of differences between the two economies: Ireland has no real manufacturing base, is structurally linked to the Eurozone, and for the last ten years has been largely dependant on foreign investment and domestic construction to keep things buoyant. I don’t see how any of this applies to the US economy.
In short, following Ireland might not be a great idea.
September 29th, 2008 at 11:15 am
Wasn’t there someone at the debate who talked about closing corporate loopholes?
September 29th, 2008 at 11:27 am
Ireland’s defence budget is about $1.3 billion. It’s easier to keep taxes low if you don’t try to rule the world.
September 29th, 2008 at 11:29 am
I’m a big proponent of the policy prescription outlined here, essentially saying to the corporations “we’ll give you your 25% rate, but you better fucking pay it.” However the important questions is, how many corporations operating make major location decisions based on the fact that they know they can take advantage of our loopholes? I would guess a lot. So the 37% rate doesn’t really mean anything to them, nor will cutting it.
I also think the same argument seems to apply to the personal income tax, with some research showing that the top tax bracket is more willing to report earnings under the Bush tax rates.
September 29th, 2008 at 11:33 am
Why are you linking to Fox News?
September 29th, 2008 at 11:34 am
Note also that Irish investment in the US is responsable for almost as many American jobs (about 90,000) as US investement in Ireland is for Irish jobs (about 100,000).
September 29th, 2008 at 11:41 am
Matt:
You just know you’re about to see a flood of wingnuts promoting this as proof of the Laffer Curve.
September 29th, 2008 at 12:02 pm
This must be a GOP talking point, because I heard Newt Gingrich also cite Ireland’s corporate tax rate on “This Week”
September 29th, 2008 at 12:07 pm
Ireland might be collecting more corporate tax BECAUSE it has lower corporate tax rates.
In other words, it might be worth firms’ while to spend a bunch of money on lawers, accountants, etc. to dodge a 35% ta, but not to dodge a 10% tax. Thus, if we lower our own corporate tax rate, we may raise revenue collection.
September 29th, 2008 at 12:21 pm
The US might try to emulate the success of Ireland by becoming a hub for European companies into the Chinese market? Or something…
Having a profit tax is a bad idea anyway. It’s better to shift to a revenue tax. That could be as low as 1%. And it would eliminate any use for loopholes and offshoring headquarters into tax havens.
September 29th, 2008 at 12:28 pm
You just know you’re about to see a flood of wingnuts promoting this as proof of the Laffer Curve.
The thing is, most economists agree that something like the Laffer Curve exists. The problem with the wingnuts is they always assume we’re on the right-hand side of the curve, despite all evidence to the contrary. Cutting taxes from 90% to 75% may increase revenue. From 30% to 20% … probably not.
September 29th, 2008 at 1:00 pm
And yet Ireland also manages to provide a basic level of free medical care for it’s entire population – funny how McCain doesn’t want to compare the US to that Irish model
September 29th, 2008 at 1:47 pm
Just on the issue of Ireland’s “basic level of free medical care”. Ireland’s health service is actually a notable shambles – starved of funding, beset by inefficiencies, and now swaddled in scandal. It is perhaps the worst in the EU, and Irish liberals regularly – and correctly – chastise it as being of a ‘Third World’ standard. In comparing it to the US, Ireland’s health care system is actually a picture perfect example of how not to run a national health service.
Probably best to have a look at France and Britain instead.
September 29th, 2008 at 2:53 pm
Not sure what it’s worth with regards to this discussion, but Ireland is officially in a recession. Link in my name.
September 29th, 2008 at 7:54 pm
Matt,
You are missing the point about the Irish corporate income tax. It’s not loopholes, it’s that multinational corporations find Ireland an attractive place to take profits. It’s English-speaking, it’s in the EU, it’s right next to England. So, they put in offices in Ireland and make up semi-plausible stories about how profitable those facilities are so they can pay low Irish rates.
It’s a great strategy for a tiny country, but tininess is of the essence.
September 29th, 2008 at 8:17 pm
I’m not sure that I buy the argument that lower tax rates would boost economic growth.
At present, capital is invested in those economic activities that achieve a threshold of net profitability after taxes. A lower tax rate would simply create an opportunity for capital to be invested in less productive economic activities.
This raises the question of how much the economy would benefit from investing in actitivities that only make sense if the tax rate is reduced?
September 29th, 2008 at 9:17 pm
To the people saying “Ireland is in a recession” – how is this relevant to this argument?
Ireland has experienced one of the longest economic booms for the past fifteen or more years uninterrupted by recession – and now we’re in one you’re using this as an example of why low corporate taxes are a bad idea?
Correlation /= Causation!
October 16th, 2008 at 1:36 pm
Isn’t Ireland a socialist country and wouldn’t that help the government subsidize import/export tax policy so as to keep the rate lower?
March 2nd, 2009 at 5:26 am
levitraIf you have to do it, you might as well do it right
March 11th, 2009 at 4:50 am
Great site. Good info
March 17th, 2009 at 2:31 am
If you have to do it, you might as well do it right
tramadol
March 22nd, 2009 at 6:22 am
tramadol
Great site. Good info
March 22nd, 2009 at 10:32 am
buy viagra online
Very interesting site. Hope it will always be alive!
April 2nd, 2009 at 5:28 am
Excellent site. It was pleasant to me.
buy cheap viagra
April 3rd, 2009 at 4:18 am
I bookmarked this site. Thank you for good job!
cheap brand pfizer viagra
April 9th, 2009 at 6:44 am
Great site, Good info viagra