The Irish tell President Biden: ‘Níl, go raibh maith agat’
Three years ago, I wrote:
In 1988, The Economist magazine ran an article on Ireland titled ‘The poorest of the rich’. The title was well deserved.
But, when The Economist next came to write about Ireland’s economy in 1997, they called it ‘The Celtic Tiger: Europe’s shining light’.
In the intervening years, GDP rose and unemployment and government debt fell. What happened?
The Irish hadn’t found the mysterious pot of gold. They had simply embraced sound fiscal and monetary policies.
According the economist Dermot McAleese, in the years leading up to The Economists‘ 1988 diagnosis, Ireland had been plagued by “High taxes, low confidence, high labour costs, excessive regulation and anti-competitive practices”. And, no matter how high tax rates were, spending was higher still. This meant large fiscal deficits.
By the beginning of the 1990s, it had become apparent that this could no longer continue. Acting boldly, the government – with wide support – slashed spending and made credible commitments not to engage in deficit spending or inflate the currency. It deregulated and drastically lowered tax rates. The 2002 Index of Economic Freedom published by the Wall Street Journal and The Heritage Foundation, ranked Ireland the world’s 4th freest economy.
One of the salient features of Ireland’s economic boom was its low corporate tax rate. Until the 1990s, the standard rate of corporate profits tax (CPT) was 50% with a 10% rate on all corporate profits for export-oriented manufacturing and traded services. By 1982, over 80% of companies who located in Ireland cited the taxation policy as the primary reason they did so. Under pressure from the European Union, Ireland replaced this system in 1997 with a 12.5% rate of corporation tax for trading income from 1 January 2003. And these low rates brought high revenues. In 2004, Corporate income taxes accounted for 13% of all tax revenue in Ireland compared to 6% in the United States and 8% in the United Kingdom.
The Irish have had to fight to protect this successful regime. As I wrote two years ago:
You might have expected Ireland’s partners in the European Union (EU) to look at that country’s success and think, ‘Here is something to be emulated.’ Instead, they see it as something to be stopped. As businesses choose to locate in Ireland rather than high tax jurisdictions elsewhere in the EU, those higher tax countries are attempting to force higher tax rates upon the Irish via the EU.
And now the Irish have another foe in their fight for prosperity: President Joe Biden.
President Biden wants to hike America’s federal corporate tax rate. He knows that this will prompt businesses to move elsewhere – to places like Ireland, for example – so that he will get a higher rate of nothing. To prevent this, he wants other countries to make their fiscal policy as bad as he wants to make America’s.
To achieve this, the Biden Administration has come up with a quite extraordinary plan to impose a global minimum corporate tax rate, initially of 21%, now reduced to a slightly less barmy 15%. Even so, this would require Ireland raising its rate of corporate tax. Not surprisingly, the Irish response has been: “Níl, go raibh maith agat” (No, thank you)
In an interview with Britain’s Sky News, Paschal Donohoe, Ireland’s finance minister:
…said that he had “significant reservations” over plans floated by the US president to encourage countries around the world to adopt minimum rates of corporate tax in order to prevent companies from shifting their profits and avoiding payments in future.
He predicted that Ireland will maintain its 12.5% corporate tax rate for many years to come.
In an exclusive interview with Sky News, Mr Donohoe said: “We do have really significant reservations regarding a global minimum effective tax rate status at such a level that it means only certain countries, and certain size economies can benefit from that base – we have a really significant concern about that.”
The comments are important, since Ireland is one of the countries whose agreement would be needed if the US is to succeed with its plans to overhaul global business taxation.
The Irish did not spend 800 years trying to win their freedom from the English only to have the American president tell them what to do. A man who touts his own Irish heritage so regularly ought to remember that.
John Phelan is an economist at the Center of the American Experiment.