By George Yaksick, Washington Staff Writer
As federal lawmakers debate the merits of long-range tax reform, including the lowering of U.S. corporate tax rates in order to spur economic growth, some reform proponents point to Ireland as an example of what such a change in policy could do in the United States.
Ireland, which has one of the lowest corporate tax rates in the industrialized world, is unlikely to change its policies anytime soon, said Paul Reck, tax partner, of Deloitte Ireland, LLP, on January 31, 2008. Reck believes that Ireland's 12.5 percent corporate tax rate will remain on the books for the near future because of its beneficial economic effects. The development is likely to encourage proponents of lowering the U.S. corporate tax rate, which is three times higher, ranging from 35 to 39 percent.
No Change in Ireland
Ireland adopted its 12.5 percent corporate tax rate on January 1, 2003. "When Ireland introduced its rate, the government looked at making it effective for 25 years," Reck said. However, this would likely have generated some controversy with Ireland's relationship with its European Union member countries. Reck spoke during a webcast hosted by Deloitte Touche, LLP.
Combined with lower levels of government spending, the tax changes have jump-started an economic miracle in Ireland: once one of the poorer countries in Western Europe, it now boasts the highest per capita GDP on the continent. Moreover, the influx of young educated professionals looking to take part in the Irish resurgence has also made the country's population one of the youngest in the Western world.
Reck said there are no proposals in Ireland now to change the 12.5 percent rate. "At a political level, there is a consensus that it will remain unchanged for the near future."
Reck explained that Ireland's 12.5 percent corporate tax rate has benefited a variety of taxpayers and has led to high job growth. Manufacturing, especially in the pharmaceutical sector, has been attracted to Ireland because of its lower corporate tax rate.
Pressure on U.S.
In the United States, Republican lawmakers and some corporate taxpayers have been advocating for a lower corporate tax rate for some time, but the issue is easily demagogued by politicians.
"We would trade preferences like the research and development tax credit in a minute for a lower corporate tax rate," Safra Catz, president and CEO of the Oracle Corporation, said at a conference sponsored by the Treasury Department last year. The top corporate tax rate of 39 percent makes it the second highest in the industrialized world. Only Japan has a higher corporate tax rate.
More recently, Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, called for a reduction in the U.S. corporate tax rate. "Reducing the corporate tax rate would help us keep our companies competitive internationally," Rangel said after President George W. Bush's State of the Union address on January 28.
Bush has indicated that he is open to cutting the corporate tax rate. However, he has stressed that any proposal must be revenue-neutral. "My view all along has been the more simple the Tax Code, the better; whether it be in the individual income tax side or the corporate tax side," Bush said last August.
The Ways and Means Committee could explore lowering the corporate tax rate when it takes up Rangel's comprehensive tax reform bill this spring. Legislation has been introduced in the House to lower the corporate tax rate to 25 percent.
- Related items:
- Tax Round-Up: A Look Ahead to Changes in 2008
Posted February 12, 2008.
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