Ireland’s Tax Lesson for Biden

The country used a low corporate rate to become a Celtic tiger. That’s why it opposes the U.S. global minimum tax.

WSJ editorial. Excerpts:

"Apply the same low tax rate to every business. Policy makers settled on 12.5%, which was a tax increase for some companies but a cut for others. This was a classic flat-tax reform, and from then on Dublin was out of the tax-subsidy business. 

Ireland has reaped the benefits. Between 1986 and 2006, the economy grew to nearly 140% of the EU average from a mere two-thirds. Employment nearly doubled to two million, and the brain drain of the 1970s and 1980s reversed. Ireland became a destination for global capital.

Oh and by the way: After Ireland slashed its rate and broadened the corporate-tax base, tax revenue soared. Except for the post-2008 recession and its aftermath, corporate-profits taxes in some years account for about 13% of total revenue and exceed 3% of GDP. That’s up from as low as 5% of revenue and less than 2% of GDP before the current tax rate was introduced.

Some economists on the left downplay tax policy’s role by claiming Ireland benefited from an influx of EU subsidy money for public works. Yet Ireland’s economic growth in the early 2000s outpaced other lagging EU economies that received similar subsidies as a share of GDP. Low tax rates, equally applied, made the difference.

The other ingredient in Ireland’s tax success had little to do with the rate and everything to do with politics. To wit: Politicians across the ideological spectrum refused to play games with tax policy. The 12.5% corporate rate has endured for more than 20 years, through governments left and right. Even Sinn Fein, the furthest left major party in Ireland, declares it won’t change the corporate rate.

Irish politicians know that businesses value certainty, and that Ireland’s low-tax policy has become emblematic of a commitment to consistency. The political class promises not to change the rules on a whim to favor some businesses or punish others. Global companies are eager to take up this offer."