One talking point that really stuck out at me during the 2008 presidential debate was the claim by John McCain that the US could benefit from an Ireland style business tax system. His quote was as follows:
Right now, the United States of American business (OOTC:ARBU) 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 want to cut that business tax. I want to cut it so that businesses will remain in — in the United States of America and create jobs. *(the actual rate is 12.5%)
Now that Ireland has come begging for help, Ireland's business tax system has come under fire. It turns out that there are loopholes created by this system that allow companies like Google to funnel money through their system and pay a rate of 2.4% after all is said and done. While companies have located their businesses in Ireland it has not led to a boom in tax revenue. The problem is with a rate so low they are not drawing enough businesses to cover the lost revenue of the tax cut. The other part of this equation is the income tax. Typically with more business you should have more people employed and paying income tax which will make up for some of the short fall. Unfortunately these companies are setting up shell companies to use the Irish tax rate but bringing very few employees to do so. What Ireland has done is allow companies essentially a tax free zone and cost other countries tax revenue. In the battle of the tax payer vs Big Business, Big Business wins again.
Luckily for the American tax payer John McCain has not gotten his way. 2/3 of American business already don't pay taxes leaving the American public to pick up the tab. The Ireland plan that Republicans seem to covet would only make that disparity worse.
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