February 29, 2008
The Irish Miracle
We had to hear about Sweden from lefties all through the 70s. It is only fair that we now tell the story of Ireland. Stephen Moore in Political Diary:
The other day Paul Krugman of the New York Times once again attacked supply-side tax cutting ideas and snarled that "Reaganomics was oversold" and its successes were "shortlived." We won't fight that fight again, but it is interesting that for all their attacks against supply-side economics and all their prophesies that high tax rates don't hurt, the one thing economists and politicians on the left cannot explain is the Irish Economic Miracle.In the 1970s and '80s Ireland had one of the highest percentage of its citizens on welfare or collecting unemployment benefits, and the country of four million people was losing population each year. An estimated one million Irish-born immigrants were living in America -- many of them illegal aliens, and many of them their country's best and brightest.
Starting in 1989, Ireland's politicians began cutting tax rates, and now its corporate tax rate is 12.5% -- by far the lowest in Europe. The highest personal income tax rate came down to 41% from 58%. In the following years, Ireland's growth rate soared to 8% per year, more than twice the U.S. growth rate and nearly three times Europe's. Ireland is now the continent's third-richest nation on a per capita basis. Over the last 18 years the nation's employment has increased by an astonishing 75%.
A key element of John McCain's platform is cutting taxes on corporate profits to 25% from 35% -- bringing America's corporate tax rate closer to the average of our European and Asian competitors. In selling his plan, Mr. McCain might talk not only about what Ireland has achieved, but what it means for U.S. competitiveness. An Intel executive confided recently that his company builds most of its new plants offshore because of the high U.S. tax on corporate profits. According to Barry O'Leary, head of the Investment and Development Agency of Ireland, a U.S.-based plant would have to grow profits by 45% a year "to achieve the same [after-tax] income available in Ireland. He adds: "Our tax cutting has made Ireland the highest growth nation in Europe over the last decade. We are importing firms and workers."
Meanwhile, Senators Clinton and Obama are peddling the idea that the U.S. can tax its ways to prosperity in the competitive global economy. If one of these two wins in November, Ireland is going to get richer than ever.
And, for the record: Sweden seems to have learned more than her apologists. Henry Olsen, writing in The American Magazine:
So Americans might be surprised to learn that “Old” Europe is actually ahead of us in tackling many of the most vexing domestic policy challenges. Without much fanfare, Sweden, Holland, and other countries known for their social-democratic welfare states have adopted innovative, market-based reforms on issues such as pensions, transportation, and education. What’s more, while U.S. politics remains paralyzed by partisanship, European parties on the left and the right have teamed up to implement free-market policy ideas that are criticized by the American left as extreme.
The start up I was involved with headquartered in the Republic of Ireland for tax purposes. Sadly, we did not take advantage on the 0% rate on IP-generated capital gains. But before we ran out of Euros, we provided several man-years of employment to Irish software developers, plus frequent travel to and entertainment in Dublin, and the contracting of Irish accountants and legal counsel. Incentives matter.