Barack Obama's plans to penalise US companies moving jobs overseas could affect us severely, writes Michael Casey
THINK BACK to the Democratic convention some weeks ago in Denver, Colorado. Barack Obama went into more detail than heretofore about his economic policies.
His spending plans for health, equal pay, safe and sustainable domestic energy supplies, help for US car companies, employees' rights, etc will all come with a hefty price tag. It is not at all clear how he will pay for these spending plans, especially as he has also promised to cut taxes for 95 per cent of American working families. And he simply cannot afford to add to the US's already serious twin deficit problem.
There was, however, one clue in his speech as to how he might help to square the circle, and it is an alarming one from Ireland's point of view. He attacked John McCain for proposing tax breaks for big corporations. But then he went much further and was quite specific about ending tax breaks for US companies that invest and create jobs overseas.
On top of all that, he promised to give tax breaks to companies that create good jobs "right here in America".
Perhaps a dozen Irish politicians attended this speech, but no one has given any indication of what this could mean for the Irish economy. Possibly the Obama camp believes that such a large presence of Irish politicians signifies agreement with his policies and that this can help him enlist the support of Irish-Americans.
Some people voted No to the Lisbon Treaty because of doubts about the EU's real intentions regarding tax harmonisation (legal language can mean anything the big states want it to mean). But that, of course, was merely one side of the issue, ie the actual rate of corporate profit tax (CPT) of 12.5 per cent in Ireland.
The other, more important, side of the issue is the US administration's attitude towards international tax incentives that reduce investment, jobs and tax revenue within the US. So far, the attitude has been laissez-faire, if not benevolent. With a pro-business Republican president like George Bush, there was little risk of any form of double taxation being introduced.
Irish agencies charged with attracting foreign investment to Ireland have always been more wary of Democratic administrations than Republican ones.When a strong Democratic candidate like Obama makes such a clear statement of intent and when, if elected, he will clearly need every cent of tax revenue he can get from big business, then this promise has to be taken seriously by the Government.
Potentially, it could be far more damaging than the subprime crisis. It could directly affect the real economy and ordinary workers. This is Main Street, not Wall Street.
Many will contend, of course, that no one, not the US or even the EU, can make us raise our CPT rate above 12.5 per cent.
In a world of global realpolitik, that may be true. But what is certainly true is that the US could, at a stroke, revoke or alter various tax treaties, so that its multinational companies would have to pay tax in the US as well as in a foreign host country such as Ireland. Double taxation might not stop US companies from going abroad, but they might think twice about setting up in a high-wage country like Ireland if the scope for tax avoidance and transfer pricing is significantly reduced.
Such a risk would become even more serious if there was a degree of retrospectivity. It would be bad enough if existing multinationals established here were subject to double taxation in the future.
Is it conceivable that we could be faced with a situation where new foreign direct investment slows to a trickle and, on top of that, existing US firms in Ireland relocate to other countries on a significant scale?
The one silver lining in this dark cloud is the track record of the IDA, probably the best public body in Ireland. But even with such a professional and committed organisation, could we really cope with such a major policy change in the US?
The implications for the economy could be serious. The loss of inward investment would be matched by a loss of embodied technology and value-added jobs. The exchequer would be hit hard by the loss of tax income. There would also be various negative multiplier effects and loss of linkages with indigenous enterprises.
The Celtic Tiger phenomenon was fundamentally caused by a surge in US direct investment in Ireland after we joined economic and monetary union.
Is it possible we could be on the verge of losing what was gained during those years of supernormal growth? Could the Government's hope of establishing an information economy be in jeopardy?
The fact that we made Shannon available to US troops and to those involved with rendition flights will probably not cut any ice with Obama, given his policies on Iraq. It is also clear from the pattern of his campaign funding that he is not obligated to big business.
To make matters worse, during the first presidential debate, McCain also indicated his concern about US multinational companies creating jobs overseas rather than in the US, and he specifically mentioned Ireland in this regard.
Since there is no plan B for the Irish economy, we should hope that, if elected, Obama forgets about this particular promise regarding corporate taxation.
Our European colleagues are unlikely to lobby hard on this point since they do not depend much on American investment.
No other European state would stand to lose anything like as much as Ireland. This means we may well be on our own if lobbying is undertaken.