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Cutting Corporate Taxes

Cutting Corporate Taxes


Kerby Anderson


 


 


            During a campaign year there is always lots of talk about cutting taxes. Candidates have different ideas about whether to make the Bush tax cuts permanent or whether to use the potential tax revenues for additional government spending. More recently there has been a push to provide a retroactive tax break for homebuilders while other groups have pushed for tax breaks for their specific business.


 


            If we really want to help businesses survive and succeed, we need to look at the corporate tax rate. Economists point to the Irish model as a concrete illustration of the impact of lowering the corporate tax rate.


 


            In the mid-1980s, Ireland was an economic backwater with an average income level 30 percent below that of the rest of the European Union. Today, Irish incomes are 40 percent above the EU average.


 


            Part of the reason was government spending; the rest was a reduction of the corporate tax rate. Irish government spending fell from more than half of GDP to about one-third of GDP. This was a significant change, but the most important change was the reduction of the corporate tax rate.


 


            Ireland established a corporate tax rate for manufacturing of just ten percent. This was extended to high-technology, financial services, and other industries. Later, Ireland established a 12.5 percent tax rate on all corporations. This is one of the lowest in the world, and one-third of the U.S. corporate tax rate that is nearly the highest in the world.


 


            Ireland has been able to attract huge inflows of foreign investment and has a flourishing high-tech industry. This wasn't because of the luck of the Irish. It was due to a wise decision to lower the corporate tax rate. Perhaps we can learn a lesson from the Emerald miracle. I'm Kerby Anderson, and that's my point of view.