Top O’ The Afternoon To You!

By March 17, 2007Economy

Driving the snakes off the island was the first great pro-growth policy decision ever made in Ireland. But lowering tax rates was undoubtedly the most effective. From It’s Not Luck by Chris Edwards of Cato.

[The] key to Ireland’s success has been its excellent tax climate for business. In 1980, Ireland established a corporate tax rate for manufacturing of just ten percent. That low rate was subsequently extended to high-technology, financial services, and other industries. More recently, Ireland established a flat 12.5 percent tax rate on all corporations — one of the lowest rates in the world, and just one-third of the U.S. rate.

Low business tax rates have helped Ireland attract huge inflows of foreign investment. Given the country’s modest size, it boosts a high-tech industry second to none. Intel, Dell, and Microsoft are among the island’s biggest exporters. Ireland also hosts booming insurance, banking, money management, and pharmaceutical industries.

The Irish model of rock-bottom business taxation has been hugely influential. In recent years, corporate tax rates have been slashed across Europe. According to KPMG, the average rate in the EU has fallen from 38 percent in 1996 to 26 percent in 2006.

Now, for your consideration, a passage from the NAM’s news release announcing publication of “The Escalating Cost Crisis,” a Manufacturing Institute study that detailed the 31.7 percent additional costs that wrong-headed public policies impose on manufacturers in the United States.

The corporate tax rate was both the highest burden in absolute terms and the largest contributor to the increase in structural costs, responsible for more than one third of the increase in the cost burden. While the corporate tax rate has remained the same since then, some trading partners have lowered their statutory tax rates, thus widening the gap and undercutting U.S. manufacturers.

“By standing still, the United States is falling behind,” Engler said.