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Tilting at Windmills

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January 28, 2009

REPUBLICANS HEART IRISH TAX RATES.... While pushing back against the economic stimulus plan, Republicans have, of course, been demanding more tax cuts. But what kind of tax cuts are we talking about? Republican Policy Committee Chairman John Ensign, the fourth-ranking Republican in the chamber, argued yesterday:

"You know, we have the second highest corporate tax rate in the industrialized world. Microsoft, which is a great American company, has zero exports from the United States. They have a lot of exports from Ireland, because, guess what, Ireland has a 12.5 percent corporate tax rate; we have a 35 percent corporate tax rate."

Are we back to this again? John McCain relied on this talking point quite a bit last year. In the first presidential debate, the Republican nominee said: "Right now, the United States of American business pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent. Now, if you're a business person, and you can locate any place in the world, then, obviously, if you go to the country where it's 11 percent tax versus 35 percent, you're going to be able to create jobs, increase your business, make more investment, et cetera."

I'd hoped we were past this, but so long as congressional Republicans want to re-litigate this as part of the stimulus debate, we might as well set the record straight. Igor Volsky explained that the Republican argument is "full of so many other holes, you can drain spaghetti with it."

* America's Effective Tax Rate Is Comparable To Other G7 Nations: According to a recent U.S. Treasury report, the effective tax rate on equipment financed by equity is 24 percent, the same as the G-7 average. The rate on equipment financed by debt is minus 46 percent, meaning that the government actually subsidizes these investments rather than taxing them.

* America Is The Number One Country To Do Business: The World Economic Forum's Global Competitiveness Report for 2007-2008 concluded that the United States is most business friendly, followed by Switzerland, Denmark, Sweden, Germany, Finland and Singapore. Ireland came in at number 22.

* Two-Thirds Of Corporations Did Not Pay Taxes: According to last month's Government Accountability Office (GAO) report, between 1998 and 2005 "about two-thirds of corporations operating in the United States did not pay taxes" because of a variety of corporate tax loopholes.

* US Raises Less Taxes From Corporations Than Ireland: In the United States, corporate revenues as a percentage of GDP was about 2.2 percent; Ireland raised close to 4 percent.

Yglesias added a while back, "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."

Someone really ought to let the GOP caucus know about this. I'm sure they'll want to update their talking points.

Steve Benen 12:55 PM Permalink | Trackbacks | Comments (31)

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Comments

See, we are now past Keynes and into Ricardo. Who and when are the taxpayers going to pay for all this stuff!

Posted by: MattYoung on January 28, 2009 at 1:08 PM | PERMALINK

While we're at it, why don't we imitate Ireland in some other ways as well? Like healthcare coverage?

Posted by: exlibra on January 28, 2009 at 1:09 PM | PERMALINK

Ireland's also dead fookin' broke right now, lads. Dead fookin' broke.

Posted by: O'Cazart on January 28, 2009 at 1:11 PM | PERMALINK

The reason Republicans want to reduce Corporate tax rates is that the upper income earners make most of their income off of dividends.

I took a B-School course in the mid '80s, an accounting course. One of the first pieces of wisdom offered from the prof was that corporations don't think about taxes (federal tax).

In fact, tax is only imposed upon profit, and corporations have many opportunities to reduce profits, and can carry back or forward profits/losses many years to reduce their yearly profits. This year many corporations will probably get money back from previous years tax payments.

So the corporation's health is never affected by the actual tax rates imposed on the corporation. The problem comes when a corporation chooses to declare a profit so that they can distribute dividends to shareholders. Any taxes paid reduce the dividends which get distributed. This tax is disproportionately paid by the rich, although you could just as easily argue that 100% of the profit is a tax on workers, since it could have been used to increase wages or bonuses.

The main reason to impose taxes on dividends is that it helps maintain the health of the corporation. If no tax was imposed, short term management decisions could lead to the long term health of the corporation.

Another great reason to tax corporations is that large corporations could be owned by foreign investors. If on tax was imposed, these owners would pay no US taxes.

Posted by: tomj on January 28, 2009 at 1:13 PM | PERMALINK

Someone really ought to let the GOP caucus know about this. I'm sure they'll want to update their talking points.

Someone really ought to let the talking heads from the corporate-controlled media know about this. Yesterday I watched Tweety in complete agreement with the Republican (I don't remember which one) who was spouting this nonsense.

Or maybe the Democrats could call the Repub's bluff, and offer to set America's corporate tax at the same rate as Ireland's -- but the rules for deductions and depreciation would also be made the same as Ireland's.

Oh, and if we want American businesses to be truly competitive, we would have to relieve businesses of the burden of subsidizing employee health coverage by creating a universal, single-payer health care system.

Posted by: SteveT on January 28, 2009 at 1:15 PM | PERMALINK

Republicans only update their talking points when they can find a better lie to present as a talking point....

Posted by: Steve W. on January 28, 2009 at 1:16 PM | PERMALINK

It would appear that Ireland collects more tax from corporations despite a lower tax rate. I guess this is because they don't have loopholes that let corporations avoid paying tax altogether? If so, I suppose a tradeoff could be offered: figure out whether we can decrease the rate but change the rules so that corporations pay more tax. Then companies that aren't in a position to exploit loopholes would see their tax rate go down, while the ones with slick accountants gaming the system would see their taxes go up.

Posted by: Joe Buck on January 28, 2009 at 1:16 PM | PERMALINK

steve, you're coloring a good argument with facts. republicans don't believe in facts. otherwise they wouldn't be republicans.

Posted by: mudwall jackson on January 28, 2009 at 1:17 PM | PERMALINK

Ireland is a corporate tax haven economy. It exploits its membership in the EEC to play the defector in a prisoners dilemma game.

Monoco has a similar strategy.

This strategy can work for a few places in the world, but it only works because they parasitize the rest of us.

The republicans facilitate this strategy greatly with their intermittent profit repatriation tax holidays. The big corporations know all they have to do is park their cash overseas for a while and the republicans will enact a tax holiday so they can get it back to the US at dramatically reduced tax rates. This was done just a few years ago and they are already proposing we do it again now.

If low taxes were a panacea Mexico would be an economic powerhouse.

Posted by: JeffF on January 28, 2009 at 1:17 PM | PERMALINK

I advocate a small tax on revenue, rather than profit. Removes the incentive for firms to reduce profitability just to cut their tax liability.

Posted by: Jasper on January 28, 2009 at 1:18 PM | PERMALINK

Revenue taxes encourage vertical integration.

If one companie mines the ore, smelts the steel, and sells the car their only revenue is the car sales.

If three separate companies do it the total revenue is much larger.

They are thus highly distorting and favor large corporate conglomerates.

Posted by: JeffF on January 28, 2009 at 1:21 PM | PERMALINK

O'Cazart has it right and the GOP really shouldn't be holding Ireland as an example as companies like Dell are laying off 25% off their work force there and companies beginning to look elsewhere. Then again, why should we expect the GOP to be aware of what's really going on? I'm beginning to think they all took a pill to completely remove them from reality.

Posted by: kswan on January 28, 2009 at 1:21 PM | PERMALINK

Why would anyone be touting the since dead Celtic tiger as an economic model? What's next for Republicans, telling us how well the banks in Iceland are run?

Posted by: grinning cat on January 28, 2009 at 1:23 PM | PERMALINK

Ireland also has a 42% top income rate in addition to their VAT. In the US it's 35%. Overall taxation equals 34% of GDP (US 28%). Republicans like to use selective analysis. These numbers, by the way, come from the Heritage Foundation.

Posted by: Danp on January 28, 2009 at 1:27 PM | PERMALINK

Someone really ought to let the GOP caucus know about this. I'm sure they'll want to update their talking points.

The GOP caucus knows about this, and they have no desire to update their talking points on this or any other demonstrable falsehood unless someone calls them on it, repeatedly.

Of course, no one is doing this, so they can keep on repeating it.

A better fourth estate, please. Even a good one would be an improvement...

Posted by: Terraformer on January 28, 2009 at 1:27 PM | PERMALINK

that the corporatocracy enables this bullshit is downright criminal. for a reality based version of corporate taxes I suggest David Cay Johnston;

http://www.amazon.com/Free-Lunch-Wealthiest-Themselves-Government/dp/1591841917

Posted by: grinning cat on January 28, 2009 at 1:30 PM | PERMALINK

The reason Ireland is so attractive to high-tech companies like Microsoft is the corporate tax break; it's a tax exemption on royalties from newly patented technologies and processes, provided that the research leading to the patent took place in Ireland.

If the GOP pushed for a similar research incentive here, I would fully support it.

Posted by: Hoosier Paul on January 28, 2009 at 1:30 PM | PERMALINK

Expanding on Yglesias' comments, here's what I would do if I had the power: Abolish the corporate income tax and the employers' portions of payroll taxes, as well as many other nit-picking federal taxes on businesses that discourage trade and/or employment; and substitute a gross revenues tax.

Advantages:
1. All businesses would pay (although Congress could build in a floor to exempt very small businesses and startups). The rate would be very low.
2. Payroll taxes discourage job creation; let's eliminate them.
3. Elimination of the tax-avoidance industry and that ridiculous meme about the excessive rate of taxes on business.

Disadvantages:

1. The same article of commerce would be taxed multiple times as it progresses through the stages of production/distribution. Presumably, avoiding this is a rationale behind the value-added tax. But I would argue that a gross revenue tax is not a tax on articles of commerce, but on the privilege of an enterprise to do business in a secure, law-based, worker-educating, private property-protecting environment.

2. Industries operating on low margins would have to pass on the tax paid at each stage of production/distribution to the consumer. I say, so be it! I think that the benefits of the system would outweigh this disadvantage. In particular, if agriculture is the prime example of this disadvantage, the fact is that the agriculture industry is already heavily subsidized; perhaps the subsidies would need to be reconfigured in order to retain relatively low food prices at the supermarket.

Posted by: rong on January 28, 2009 at 1:32 PM | PERMALINK

A low tax rate wasn't enough to keep Dell from fleeing Limerick for Poland. I find it hard to believe that a race to the bottom on corporate tax rates is the way out of the economic downturn. Maybe the GOP ought to update the talking point: substitute Poland for Ireland, Lodz for Limerick, etc...

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/technology/4177507/Blow-for-Ireland-as-Dell-quits.html

Posted by: DaveB on January 28, 2009 at 1:33 PM | PERMALINK

Has this GOP spokesperson ever heard about transfer pricing manipulation? Does he really think a US based software company that only does R&D and marketing (all production is outsourced to 3rd parties) has Ireland exporting stuff to the US? More on this:

econospeak.blogspot.com/2009/01/do-we-really-import-microsoft-software.html

Posted by: pgl on January 28, 2009 at 1:40 PM | PERMALINK

rong - Did you drop the "W" as a Bush protest?

Posted by: Miss Spelling on January 28, 2009 at 1:41 PM | PERMALINK

Isn't Ireland about to be downgraded as a sovereign? From what I can tell, the banks are about to be nationalized, or already have been. Ireland may not be the best model for a country to follow, corporate tax rates or not.

Posted by: poly on January 28, 2009 at 1:42 PM | PERMALINK

I was in Ireland in September (just at the beginning of the meltdown as it turns out). One piece of info for those republicans enamored of Irish tax rates: Guinness Stout cost more in Dublin than it does in Montgomery AL!

I look forward to the Repubs getting behind a 25% VAT and selling that to the base;>

Posted by: martin on January 28, 2009 at 2:00 PM | PERMALINK

Read all about the high times in Dublin now:

http://www.nytimes.com/2009/01/04/business/worldbusiness/04ireland.html?partner=permalink&exprod=permalink

Posted by: The Auld Sod on January 28, 2009 at 2:14 PM | PERMALINK

I used to work in leasing where I would 'transfer' tax benefits from the user of the equipment to a big finance company and reduce the overall tax bills of the combined companies.

It only worked because the tax rate was 35%. If you lowered the tax rate to 25% then the entire industry would be shut down.

Of course, the entire industry is now shut down because no big finance company has any taxble income to shelter.

My point is that lowering tax rates makes the loopholes less valuable. I am not saying we should or shouldn't lower rates. I am just stating that lowering the tax rate makes the loopholes less valuable and it would force a lot of people like my old job to get an honest job and actually produce something.

Posted by: neil wilson on January 28, 2009 at 2:36 PM | PERMALINK

The basic impression I get is, our nominal tax rates are higher but our system is corrupt since so many companies can out thorugh loopholes, etc. IOW, the worst of both worlds.

Posted by: Neil B. on January 28, 2009 at 2:54 PM | PERMALINK

I never trust these soundbites about tax rates. You need to know so much more - what is the full rate structure, at what levels do the rates kick in, how is taxable income determined.

Instead of focussing on rates, I think overall tax burden is a much better indicator, and someone pointed out that it is higher in Ireland than in the U.S. (34% vs 28%).

Most Americans are totally ignorant about how marginal tax rates work, and thus are easily fooled with blustering about scary-sounding tax rates. Witness Joe the Plumber.

Posted by: Virginia on January 28, 2009 at 3:07 PM | PERMALINK

Its funny how Republicans like Esign admire Ireland's corporate tax rate, but not so much its social safety net and strong unions. All nice comments above, which I agree with on substance, but this is after all not really about substance. This is just another verbal club in the Movement Conservative arsenal for advancing the agenda of John Galt so that the "creative elite" can acquire the 99% of the pie they deserve. The answer to every economic problem and situation is: "Cut taxes on the rich. Only average and poor people should pay taxes so that money can be shifted to the rich since everyone else is a parasite."

Posted by: Rickstersherpa on January 28, 2009 at 3:50 PM | PERMALINK

I am not a Republican of any stripe. In fact, I consider myself primarily a New Deal Democrat.

That being said, I am all for significantly reducing the nominal corporate tax rate in conjunction with closing/limiting the so-called "loopholes," which really are not loopholes: they're incentives to invest outside of the United States.

Why do this? Because in this environment, where top-line revenues are stagnant or falling, the only way to show growth in earnings, which is the metric by which stocks of public companies are measured, is to reduce costs. One effective way for a corporation to reduce costs is to reduce its effective tax rate by exporting capital and jobs. Many of the "lay-offs" announced so far this year are resulting in unemployment in our country and new jobs in other countries. Even though there may be significant costs associated with doing this, some of those costs are capitalized and can spread over numerous years, while the rest of those costs are designated "one time restructuring charges" that get ignored by the investment community.

The U.S. has led the world into a recession, and the only way we can lead them out of it is by strengthening our economy, and the only way we can do that is by focussing first on preventing further layoffs in the U.S. and then creating new jobs. The U.S. corporate tax system is driving a lot of decision-making these days and pushing corporations to weaken the U.S. economy by consolidating operations overseas where they can avoid U.S. taxes.

It would be a lot smarter for Democrats to accept the offer to lower nominal corporate tax rates as an invitation to overhaul the system and make it work for the U.S. economy as a whole. I think the average American worker would prefer to know that his job is safe over getting lower personal income tax rates. If he loses his job, it won't matter what his income tax rate is when his income drops to zero, will it?

Posted by: Griff on January 28, 2009 at 5:27 PM | PERMALINK

Take a look at the Center on Budget and policy Priorities report on the decline of corporate taxes in the US.

It's a 2003 study but you'll get the drift.

http://www.cbpp.org/10-16-03tax.htm

Hint: "Corporate revenues represented only 7.4 percent of all federal tax receipts in 2003. With the exception of 1983, this represents the lowest level on record (these data go back to 1934)."

Posted by: BigSky in AZ on January 28, 2009 at 9:01 PM | PERMALINK

Good discussion. I hope we keep touching on it now and then. When our current crises quiet down there might come a time when real reform of the tax system will become the top issue.

Posted by: MarkH on January 29, 2009 at 12:47 AM | PERMALINK




 

 

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