Another shift in balance of real power - US and UK corporation tax plans

The battle, and it is exactly that, to attract foreign direct investment (FDI) to Ireland is, it seems, about to become even more difficult. 

It may even become challenging to convince foreign companies with profitable bases here, especially American ones, to stay in Ireland if US president-elect Donald Trump and British prime minister Theresa May deliver on promises to slash corporation tax.

Mr Trump wants to cut America’s tax from 35% to something between 20% and 15%. Mrs May wants to cut Britain’s tax to the lowest among the world’s 20 largest economies. It has been suggested that she could cut the tax to a figure below 15% to try to insulate Britain from Brexit upheaval.

From an Irish perspective, Mr Trump’s proposals are by far the more worrying, though Government agencies charged with attracting FDI to Northern Ireland will welcome Mrs May’s proposals that would, at least, level the corporation tax playing field on this island.

It may not always chime with our self-image but corporate America is the high-energy, inventive, and export-driven heartbeat of our economy. The migration of American companies into Ireland in the 1990s helped foster the Celtic Tiger and that central role continues today. Last year, goods worth €27bn were shipped from Ireland to America, while Ireland bought just €10bn from America. Services sold by Irish businesses to the US stood at €8.5bn in 2014. American investment in Ireland has been a game changer and reshaped this society — and economy — in the most profound way.

Stephen Moore, one of Mr Trump’s chief economic advisers has argued that by cutting corporation tax America could more than double its annual growth rate to 4% before the decade ends — “the equivalent of adding another Texas to the US economy”, he suggested. This may offer some comfort, however briefly, to those in America’s rust belt who imagine that Mr Trump can turn back the clock and negate automation and job-exporting globalisation but it will offer little or no comfort to the tens of thousands of people working in Ireland but employed by a US firm. Their jobs are, after all, one of the prizes sought by Mr Trump and his supporters.

The situation for Britain is more complex. Mrs May may cut the UK rate as she wishes but without easy access to the EU’s free market it is unlikely to make Britain much more attractive than it already is. Mrs May has repeatedly asserted that she wants access to the free market but the right to control the movement of people. This flies in the face of core EU principles and the weekend decision by German chancellor Angela Merkel to seek another term in office suggests that position will be defended forcibly.

These are just some of the issues around using corporation tax cuts to seduce investors — as we did for decades — but there are huge social implications too. In a world where people committed to the idea of society look in dismay at the levels of tax paid by some multinational corporations, these pay-even-less proposals will strengthen the belief that real power has shifted further from national governments to business and that we will all, one way or another, pay a price .