The minimum wage in Ireland has been cut, the property taxes have been raised, yet the corporate tax rate, which could definitely benefit the gaping hole in the balance sheets, remains low, attracting businesses such as Apple and PayPal to Ireland. So while these rates may have some benefits to the country, are they providing just as much harm to the people? This is an ongoing debate that deserves a closer look.
In 2010, Ireland unveiled a plan to find savings of $20 billion over four years to pay back a bailout from international partners. However, instead of impacting the large businesses such as Pfizer, Intel, and Microsoft that have fueled the exports of the country, the money will come from the hard-working middle class with the cuts and raises in wages and taxes.
A Needed Change?
For many years, countries such as France and Germany have complained that the tax structure in Ireland has distorted the competition. Ireland argues that the corporate tax utilized in the country is one of the foundational pillars of the economy. It provides jobs, drives exports, and creates tax revenue for the government. If the tax is increased it would scare away these companies that have flocked to the country. Additionally, it would damage the country’s ability to repay the massive debts that have accumulated.
There are many competing nations, such as Germany, that claim they should not fund the bailout requested by Ireland when the government refuses to tax a sitting stream of revenue-corporate businesses. The competition in European countries is stronger than ever to find new ways to lure big business from other areas.
With a decline in economic activity in the banking and housing markets, all that is left to spur growth is manufacturing and exports. This means that raising the corporate tax may leave the country in bigger trouble than before. However, is there wiggle room? Many proponents for a higher corporate tax say yes. Simply nudging the corporate tax up slightly will create a new revenue stream that could help the country collect a significant amount of new revenue.
Ireland has long held a strategy to lure business by reducing the tax they must pay on profits. The rate in place currently is well below France and Germany, yet still higher than countries in Central and Eastern Europe. The country’s politicians and businesses claim that it is an open, small economy that features nimble, well-educated, English-speaking workers that have a stable social compact for the companies and unions. This is the combination, along with low tax rates, that has brought companies such as Google, Facebook, Forest Laboratories, and Pfizer to Ireland.
This low tax rate and working force has drawn these companies to Ireland, providing them with the revenue that is necessary for survival. Changing these rates may cause serious damage to future growth of the country and cause some big companies to back out. Therefore, while the tax rates may be hurting the middle class, it is carrying the economy of Ireland. This is an ongoing debate that does not see a conclusion in the near future.
This article was written by Sheldon Armstrong and Richard Craft, an MBA student who looks forward to sharing more of his business knowledge so you and your business can perform better. They write this on behalf of Global Tax Services, your number one choice for all your tax needs, such as IRS tax problems. With a good background on taxation from income both within the United States and outside the US, they are sure to give you the best service possible.