A taxing fable

David Jacobson: In Monday’s Irish Times business editor John McManus speculated about why there had not been more response from disgruntled, low-earning tax payers to the government tax-cut for the rich. This is the tax relief on 30 per cent of earnings between €75,000 and €500,000 of foreign employees of multinationals transferring to Ireland for the medium term. Among other explanations, he suggested “fatigue”, “restraint” and “social cohesion”. Here is the truth:

There is a religion in Ireland the main mantra of which is “12.5 per cent corporate profit tax rate”. The elaborate accoutrements of the religion involve doing anything that the multinationals require, or claim that they require, and avoiding anything that could be interpreted to be troubling them. The high priests of the religion are the IDA. Among the staunch upholders of the religion are tax advisers, who are paid far more than the state receives in tax from multinationals.

Now it came to pass that a tax adviser and an executive from a multinational were having lunch (not free, of course). They came up with the idea of getting more net pay for multinational executives and worked out a plan as to how to justify this to the high priests. “We can tell them that it will be narrow and focused, but will encourage more job creation” said the tax adviser. “But once the measure has been passed, we’ll find loopholes and other ways to extend it.”

They then proposed it to the high priests, who saw it in terms of zeal in support of what they propagate, and in turn decided to sell the idea to the state. There is apparent separation of church and state in Ireland, of course, but there is not a member of the government who would admit publicly to being even agnostic about, never mind against, the religion’s main mantra.

The government thus, naturally, accepted the proposal. It has been accepted by the instruments of the media, both those in favour and critical of government, because of the risks involved in contradicting the fundamental dogma of the religion. And the people of the state, with no leadership into alternative paths, have also gone along with it.

And that is the true story of why the low-earning tax payers of Ireland have accepted the proposal to cut taxes for the rich.

Posted in: Taxation

Tagged with: taxation

Professor David Jacobson     @davidjacobson48

David Jacobson is Emeritus Professor of Economics at Dublin City University Business School. He is the Chair of Commission on Industrial Policy in TASC since 2011. He has written and lectured on various aspects of industrial policy and political economy in Ireland. In the 1990s he was an independent member of the National Economic and Social Council. He has also worked in many other countries, most recently Cyprus and China.