December 8, 2010
The Irish bailout recently approved by the European Union and the International Monetary Fund is serving as a pretext for governments (France, Germany), multilateral institutions (the Organization for Economic Cooperation and Development) and others to bully Dublin into raising its corporate tax rate, currently set at 12.5 percent. Ireland is resisting fiercely but the outcome is uncertain. The tussle foreshadows what in years to come will be one of the great ideological fault lines, says Alvaro Vargas Llosa, a senior fellow at the Independent Institute.
The deluge of long-term productive investments made possible by numerous reforms, including taxation, allowed Ireland to surpass Britain and Germany in income per person at the end of the 1990s.
- In the last half-decade, American companies have invested more money in Ireland than in China, India, Brazil and Russia combined.
- This made other governments in the European Union look bad, prompting various leaders and bureaucrats to speak of unfair tax competition and the need to "harmonize" the differentiated tax regimes (meaning, of course, that low-taxing regimes should be harmonized with high-taxing ones, not the other way around).
Ireland's sovereign debt woes are now being blamed in part on low taxation. Ireland did many things wrong in the years running up to the financial crisis, but offering investors relatively low levels of taxation and high levels of security was not among them. Not allowing any of the banks with serious insolvency issues to fail after the bubble burst, therefore socializing the losses caused by reckless loans, is the reason the Irish are now burdened with so much fiscal debt, says Vargas Llosa.
The Irish have suffered many humiliations of late. Some of them they deserved -- for lending and borrowing like crazy. But they do not deserve the humiliation of being bullied into adopting the wrong tax regime simply because the current one makes the rest of Europe look bad.
Source: Alvaro Vargas Llosa, "Bullying Ireland," Independent Institute, December 1, 2010.
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