Donald Trump may be a sham, but his tax plans could expose the sham that makes us one of the world’s richest nations
I place the crown on your head. Your Majesty, what tax policy would you like for your subjects? Perhaps more importantly, what tax policy would you like for yourself, given that you’re now the head of state? Given all this power, wow could you resist the temptation to tax yourself, and people like yourself, less?
Nobody likes paying taxes. The wealthiest enjoy it even less than the poor, especially in the world of progressive income and capital taxes where they more they have, the more they pay.
That’s hard for a wealthy person to take: they typically work quite hard, and they certainly tell themselves they work hard. So why should they subsidise the people they might see as lazy or less successful in society to the extent that they do? Surely the really wealthy shouldn’t be taxed multiple times when they buy, sell, or (gasp) inherit large chunks of capital?
Like most democracies, every four years the United States elects a new monarch. They call this monarch the president. This monarch gets to be in charge of the tax and spend policies of the country. Since the country started, it’s always had a king. This time it might get a queen. But that’s beside the point. Each candidate for the monarchy has had to outline what they would do with all the money the US economy takes in as taxes, and all the money it spends through the federal and state-level governments.
The Trump tax plan is so bad it is almost funny. King Donald would tax incomes at 33 per cent but tax all businesses at 15 per cent, no matter whether the business was Walmart or Steve’s Second Hand Books. Those people who own businesses, who own financial assets like stocks and bonds, real assets like houses, would do very well under King Trump. Over a decade, middle-income taxpayers would benefit by about $2,700, or a 5 per cent increase in their after-tax income. The highest 0.1 per cent of taxpayers would have received tax cuts of $1.3 million each, or a 19 per cent increase in their after-tax incomes. People like Mr Trump would benefit massively from them. With little or no revenue-increasing measures, and a pile of tax cuts, the US federal deficit would balloon by $10 trillion under these proposals.
Cutting the US corporation tax rate from 35 per cent to 15 per cent would also reshape labour markets. Why would anyone work as a salaried employee and pay 33 per cent, when they could incorporate and pay 15 per cent as Bob Smith, Ltd? Hilary Clinton’s tax proposals are essentially the same as President Obama. Her proposals would increase revenue by $1.1 trillion over the next decade. Nearly all of the tax increases would fall on the top 1 per cent. The bottom 95 per cent of all taxpayers would see almost no change in their taxes.
Ireland benefits hugely from US companies moving their global capital around to pay as little tax as possible. They’d rather pay Ireland’s 12.5 per cent (and lower) than the US’s 35 per cent. Lowering the corporation tax to 15 per cent would essentially eliminate Ireland’s competitive advantage in tax policies.
Trump is beholden to, and controlled by, no one. That is the central selling point of his campaign. He is a sexist, racist, misogynist liar, but he is not an insider or in thrall to corporate interests other than his own. The chances of a President Trump moving business taxes down are very high. This represents a risk for Ireland.
The NTMA recently released a fascinating note discussing where Ireland’s corporate taxes come from. Corporation taxes in Ireland are really weird when compared to other rich, open economies. They aren’t a huge part of our tax take – only about 10 per cent, but corporation taxes are highly concentrated by size of payment, by company, and by sector.
For example, the top ten companies produced about 40 per cent of all corporation taxes in 2015. That’s €900 million paid by just ten companies. Just three sectors – pharmaceuticals, manufacturing, and finance and insurance–are responsible for 69.5 per cent of all corporation tax.
You can see the risk, can’t you? President Trump changes the tax code in the US, and two or three of the Big Ten hit the road. A hole gets blown in Ireland’s corporate tax take, and government services have to readjust downwards to compensate.
The Irish economy is stronger than two or three companies. We’ll weather the change, but it is significant, I think to note just how far off course we are from the original vision of Lemass and Whittaker. Their vision, in the 1950s, was to use the tax system to import foreign capital to Ireland to give our people jobs, increase their productivity, and develop the nation.
We’re now one of the richest economies on earth, but where do these riches come from? Do they come from making things, with highly educated people producing goods and services they sell abroad, or do they come from accounting tricks?
Are they as much of a sham as Donald Trump?
Let’s hope we don’t find out.