News

Obama’s Tax Plan Need Not Spell Doom for Ireland

Irish Times

June 17, 2009

 By Trina Vargo

BEFORE US president Barack Obama announced his plan for closing tax loopholes used by American corporations overseas, many were anxious about how this might affect Ireland. The president’s plan is less than was feared by Ireland. How should Ireland react?

1. DON’T TAKE IT PERSONALLY.

Of course Obama wants to create and keep jobs in the US. That’s his job. While Ireland is consumed with its own downturn, it is not alone. The US economy is worse than it has been at any time since the Great Depression.

Michigan, a state of 10 million people, has a higher unemployment rate than Ireland. Ireland has carved out a nice niche for itself in terms of the 12.5 per cent corporate tax rate. But you cannot expect that other countries, including the US, will not try to compete with that.

2. SEE FIRST IF A PROBLEM EXISTS

For the most part, cooler heads in Ireland seem to be prevailing. There is always a handful of crisis junkies who seek to create problems that do not exist. The truth is that we do not really know what impact Obama’s plans will have on Ireland. Details have to be fleshed out, legislation drafted, Congress will have its own ideas, etc. So far, most think that what Obama has proposed is unlikely to have any major impact on US companies doing business in Ireland.

The Obama plan would “reform the rules surrounding deferral so that companies cannot receive deductions on their US tax returns supporting their offshore investments until they pay taxes on their offshore profits”.

You won’t find many Americans, and probably few Irish, who find that an unreasonable proposition.

The accountants of the multinationals are no doubt busy calculating what this means for their bottom line and they will determine where the line will be drawn in terms of whether this is something that must be fought or simply conceded given the current economy.

It is interesting that at least three companies, including Accenture, recently said they would move to Ireland. Ireland has already benefited from Obama’s announcement. So Ireland should first see if there is a fight to be picked before assuming that is the case.

3. IRELAND IS A BIT PLAYER IN THIS

Al Haig, who served as former US president Ronald Reagan’s secretary of state, wrote that former Pakistani president Zia ul-Haq once remarked that “being the friend of the United States is like living on the banks of a great river: the soil is wonderfully fertile and there are many benefits, but every four or eight years, the river, flooded by storms that are too far away to be seen, changes its course, and you are left in a desert, all alone”.

This tax issue is largely outside Ireland’s control. To the degree that Ireland may want to see something changed in whatever legislation emerges, if those changes come about, it will be because of the muscle of the US business lobby acting in its own self-interest.

It is actually unfair to expect the Taoiseach, Tánaiste or your Ambassador to the US to have any real sway over this. The likes of Microsoft, Google, Intel and the pharmaceutical companies will carry your water for you. They have unlimited resources and much greater influence than Ireland does.

4. WHAT IRELAND CAN DO

Ireland should be talking about what it is, as well as what it is not. You can do a much better job of telling Americans how Ireland benefits the US economy. That means Enterprise Ireland has as much work to do as the IDA.

Ireland’s pitch to date has been self-absorbed. Ireland is seen to be saying to the US: “We’ve set up this sweet structure that has lured American companies to Ireland – don’t mess with that.” That is not a strategy. Ireland should be pointing out that this relationship is not a one-way street and that there are jobs in the US because of Irish companies.

It is not sufficient to say something generic such as “Irish companies are responsible for thousands of jobs in the US”. Is Enterprise Ireland keeping good statistics on these jobs and why does it practically hide this information? The IDA never made a secret of how many jobs American companies created in Ireland, but Enterprise Ireland treats the reverse statistics like State secrets. This harms Ireland.

I recently examined a particular US state to see how many jobs it lost to Ireland versus how many jobs in the state were thanks to Irish companies. I contacted Enterprise Ireland to request the statistics and was told the information was confidential. After I nudged, they sent me a few figures but they were incomplete and they missed what I suspected to be the biggest Irish employer in the state. So I contacted the chief executive of the Irish company directly and he immediately shared the numbers with me.

This in turn allowed me to determine that this particular state had a net gain in jobs from Ireland. Enterprise Ireland should be widely disseminating the information that differentiates Ireland from other countries that are viewed as tax havens.

Americans are largely oblivious to Ireland’s contributions to the US economy. Part of the reason is because most of your companies, including some of the biggest, do not advertise as being Irish. Most Americans would not have a clue what Glanbia is or how many jobs it is responsible for in the US. EMPG, formally known as Riverdeep, which bought Houghton Mifflin – most do not know that is an Irish company. A company like CRH also does not brand itself as Irish. In the states where CRH is located, it is simply known by the pre-existing name of the company it bought – so it could be Joe’s Quarry, for example – but no one knows its parent company is Irish.

Add to this US property owned by the Irish and your amount of spend, as tourists, and you start to paint a picture of Irish companies and individuals contributing to the American economy.

5. DON’T WASTE MONEY ON LOBBYISTS

I worked for Senator Ted Kennedy for 11 years and cringed at the number of countries that had been convinced by lobbyists that they needed to hire them to talk to staffers like me.

I regularly told foreign embassies that they should not waste the money; they could just come in and see me themselves. The US government is not unnavigable, nor is it as daunting as people are led to believe by those who benefit from having them believe that. I would rank lobbyists as the last group I would send in to a member of Congress or their staff.

Irish diplomats would be better. Even better, Americans who benefit from Ireland’s presence in our country. For example, I would have Glanbia’s American managers, in every state they are in, meet their member of Congress to let them know that this Irish company is responsible for x number of jobs in their district. An American voter is more effective than a lobbyist or even the diplomat of a foreign country. You need to make the case that our economic relationship evens out in the end – it is a win-win for both countries.

6. DON’T RELY ON US MULTINATIONALS

Do not lose sight of the forest for the trees. Ireland’s biggest threat is not a change in US tax policy but the declining competitiveness of Ireland, which will lead companies to move to other countries even if the Obama tax reforms have little impact.

I wrote in this newspaper in November that the Irish economy should not rely predominantly on multinational investment, that Ireland should not put all its eggs into the one basket of its low corporate tax rate.

Instead, Ireland should be equally, or better known, for a world-class innovation economy. Ireland can and should be a leader and a model in the creation and development of green jobs, but advancement in this space could suffer from a seeming lack of ability to move quickly. The Government should also recognise the unique value Ireland’s creative industries can contribute to the economy. Theatre, film, animation and music are areas where Ireland can occupy a unique space.