Tax hike on income over €100k ‘is lousy economics’

The most powerful group representing American businesses has warned moves by the Coalition to increase taxes on income above €100,000 would pose a significant risk to their investment in Ireland.

President of the United States Chamber of Commerce Thomas Donohue also said Ireland would be “a damn fool” to give in to demands by our European partners to change the low corporate tax rate.

His comments support claims by Richard Bruton, the jobs minister, that the rate of tax on income is a barrier to the creation of employment and should be lowered.

The issue is already emerging as a source of disagreement between the Coalition partners ahead of October’s budget, with the Labour Party holding out for a 3% hike in the universal social charge on salaries over €100,000. This proposal was rejected by Fine Gael, prompting a Cabinet walk-out last December.

However, Labour leader Eamon Gilmore is under pressure to put his party’s stamp on budgetary policy.

In an interview with the Irish Examiner, Mr Donohue said the idea of extra taxes on the highest earners “is good populism but lousy economics”. “If the tax gets high enough there are going to be fewer foreign nationals here and companies will measure it against other opportunities they have in other locations.”

Mr Bruton has said cutting income tax is an “important objective” for the Government. He said the tax wedge — the difference between what a worker is paid and what they take home — is a factor that is considered by companies deciding to invest here.

Mr Donohue said “it would be better if it was lower” but “investment, business, and companies are all operating under a corporate tax rate here that is more attractive”.

He said he would “applaud Ireland” for standing firm on the low corporate rate: “The fundamental issue is it attracts business and attracts investment, so why would you change it?”

He said the US has more funds invested in Ireland than in China, Russia, India, and Brazil put tog-ether: “That didn’t happen by accident, it happened because the Irish are creating an environment here that makes that useful.”

Mr Donohue, one of the most powerful corporate lobbyists in Washington, was in Ireland to push the Government, as holders of the EU presidency, to kickstart talks on a transatlantic trade agreement.