Thursday, December 02, 2010

Before Bankruptcy, Conservatives Touted Ireland As Model For U.S.


During the 2008 Presidential campaign, Sen. John McCain (R-AZ) praised the Irish economy for its low corporate tax rate and said that if the U.S. would just follow suit, companies would “be able to create jobs, increase your business, make more investment.” And McCain was far from the only conservative making the “Celtic Tiger” argument that Ireland’s low tax rates were a shining, successful model of conservatism in action. Some examples:

– Dan Mitchell (then of the Heritage Foundation, now at The Cato Institute), July 2002:

Ireland already has shown that tax cuts are a recipe for prosperity. Thanks to Reagan-style tax-rate reductions, including a corporate income tax rate of just 10 percent, Ireland has become the “Celtic Tiger” and is now the European Union’s second richest country.

– Sean Dorgan, The Heritage Foundation, June 2006:

While economic success over the past 15 years can be ascribed to a range of domestic and international factors, it was not a fluke. Ireland has long had, and intends to sustain, low tax rates to attract investment. Its current 12.5 percent corporate tax rate evolved from the zero rate on export sales in the 1950s and the 10 percent rate on manufacturing and some internationally traded services introduced in 1980.

– Chris Edwards, The Cato Institute, March 2007:

However, 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.

– Jurgen Reinhoudt, American Enterprise Institute, October 2007:

The real credit belongs to Irish fiscal policy. Beginning in the late 1980s, successive Irish governments pursued vital spending cuts and tax relief…At present, Ireland has a 12.5 percent corporate tax rate, which has made it a magnet for powerhouse firms.

– Former Gov. Mitt Romney (R-MA), FOX News, January 2008:

MITT ROMNEY: Well, you know, the — the experience of other countries in the world is some guide. You take a nation like Ireland, for instance. They cut their tax rate. I believe it’s less than half of the tax rate in most of the other European nations. And they have become — well, they have moved from a basket-case economy to a booming economy. Jobs have been flowing into Ireland.

– Sen. John McCain (R-AZ) and Sean Hannity, FOX News, October 2008:

MCCAIN: No. But you know what, Sean? You’re going to go on my first overseas trip. And I think it might be to Ireland.

HANNITY: Listen, you were right about their tax rates. They did lower tax rates on businesses and it’s been a big economic boom for them.

But now that Ireland’s economy has crashed down around it, those on the right are claiming that Ireland’s woes are due to big government run amok. As Jonathan Chait mocked, “Sadly, the Irish fiscal crisis has prompted a quick realization [amongst conservatives] that Ireland was not actually the free market state we thought it was”:

– Dan Mitchell, Cato Institute, November 2010:

There are lots of lessons to learn from Ireland’s fiscal/economic/financial crisis. There was too much government spending. Ireland also had a major housing bubble. And some people say that adopting the euro (the common currency of many European nations) helped create the current mess.

– Nicole Gelinas, The National Review, November 2010:

A big reason for Ireland’s current sub-crisis is that in the fall of 2008, the nation guaranteed all of its bank liabilities. This fateful choice was not a market decision, but a government one. One could make the case that had Ireland let its bank bondholders go, as Iceland did, Ireland would be better off today. Unlike Greece, Ireland has competitive tax rates, an English-speaking population, and a workforce that desires work.

– Margot Crouch, The Heritage Foundation, March 2010:

One of the reasons for the flight of companies from Ireland and other European nations is the potential for a common tax base across the European Union which forced Ireland to raise its taxes on businesses significantly to be more consistent with high-tax European norms.

– Reihan Salam, The National Review, November 2010:

Let me say that I’m quite willing to believe that an excessively progressive income tax in Ireland exacerbated underlying political economy problems.

Though far from being the sole cause of Ireland’s economic calamity, its very low-tax environment turned it into a favorite tax haven and led to an influx of “business” that wasn’t really business at all: it was just companies like Google shuffling paper through Ireland to dodge taxes.

Ireland then experienced the same housing bubble that plagued both the U.S. and mainland Europe, and its banks, the biggest of which were twice the size of the nation’s GDP, went bust. As Peter Boone and Simon Johnson wrote, “Simply put, the Irish miracle was a mirage driven by clever use of tax-haven rules and a huge credit boom that permitted real estate prices and construction to grow quickly before declining ever more rapidly.”

Now, Ireland is undertaking draconian austerity measures, including raising personal income taxes by €1.9 billion and cutting the minimum wage, in order to receive an €85 billion bailout. So as Fortune’s Dan Primack wrote, “Got to wonder if McCain would like to recall his original message, or if he still considers Ireland to be the beacon of federal tax policy. And, if the latter, I’d assume he also believes that raising personal income taxes [is] a smart way to deal with staggering budget deficits.”

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