US tax reforms will impact on our economy
One of the arguments advanced by the Democrats is that big US firms are saving billions under tax laws introduced under the Bush administration, while they are exporting jobs at the same time.
If the proposals gather momentum US firms operating in Ireland, some of which are again starting to move all or part of their operations out of the country, could be forced to rethink their overseas investment strategies.
If expansion outside the US is penalised by a change in its tax code then the end result could be to force big companies to retrench with serious implications for Ireland and elsewhere.
This move on tax reform looks to be more than just sabre-rattling at this point, and needs to be closely watched.
It’s a potential threat at a time when our policy of getting the multinationals to move their Irish operations up the value-added chain is no longer a guarantee of firms sticking around indefinitely.
Motorola’s decision to shut its high-calibre research centre in Cork testifies to the precarious nature of an industrial policy that is reliant on the offshoots of big corporations to keep generating jobs and economic prosperity.
That’s an issue that IDA Ireland won’t be able to wish away.
Recent difficulties in the chemical sector, which has been a rock steady aspect of Irish foreign direct investment, demonstrates that factors other than being a high-value added operation can cause a firm to uproot, close or sell off some of its operations.
As the world goes more global, and competition intensifies, it is beginning to look like this economy is about to be hit with a complete new set of challenges it never anticipated.
It is not clear how many of the 130,000 jobs are vulnerable in the multinational sector in Ireland.
Events of the past few weeks have been ominous and bear out an end-of-year warning from Dolmen Stockbrokers that global pressures could seriously threaten the presence of US multinationals here.
Key regions like Limerick and Kildare where there is a high multinational presence will become high risk areas if a real exodus gets underway.
The tax reforms now being contemplated could hasten that exodus.
Last week, the Democrats met Treasury Secretary Henry Paulson to discuss changing the rules that allow companies to postpone taxes on foreign profit.
They have made it clear to all concerned they plan hearings on the tax breaks that could cost the federal government more than $89.5 billion in lost revenue over the next five years.
These breaks are just part of the hundreds of other concessions to corporate America by the Bush administration now costing the US government a hefty $945 billion (€720bn) a year in lost taxes.
Even without any negative change in the tax laws US firms are feeling the pressure of global competition anyway.
And change in the tax laws that would penalise expansion abroad is not what we want to see happening.
It would have the most serious implications for investment into Ireland and add further to the pressures of maintaining subsidiaries here.
Pat Wall, who is head of Foreign Direct Investment at PriceWaterhouseCoopers in Dublin, believes the reforms will not be so harsh as to undermine US operations in Ireland.
But he warned it is something we need to keep a very close eye on, given the current uncertainty starting to emerge in the multinational sector of the economy.
