Every time anybody suggests extra taxes on corporations, a media commentator will invariably suggest that ‘your figures don’t add up’.
Typically, there follows a mantra about left wing economics ‘lacking credibility’ or that socialists ‘don’t understand economics’ .
By contrast, when Sinn Fein drops a demand for a wealth tax from its pre-budget alternatives, political commentators praise its ‘realism’ but suggest that ‘they still have a long way to go to be credible’.
The attacks are presented as an issue of technical proficiency rather than a biased political assault. But this is simply a disguise.
Take, for example, the expertise of the Taoiseach Enda Kenny. He recently stated that 240,000 jobs were lost since the recession and that the government will be judged by how it replaces them.
But his own government’s Medium Term Economic Strategy 2014-2020 states that 330,000 jobs were lost.
Put simply, not only do his figures not add up – but he cannot even count.
The same Taoiseach also stated publically that the minimum wage in Ireland was €35,000 a year – when in fact it was half that.
Yet, strangely, the political commentariat do not repeatedly trot out the line ‘ the leader of Fine Gael cannot get his figures right’.
The default position of the Irish media is instead to attack Sinn Fein and the left about ‘their figures’ but to assume that mainstream politicians know what they are talking about.
The reality is that the left wing proposals are perfectly feasible. Those with a class bias, however, want to dismiss them without even engaging in an argument.
Let us take the great sacred cow of Irish politics – the corporation tax.
Raising Corporation Tax – Shock! Horror!
Until recently Google got away with paying just 2.4% tax on its profits.
People Before Profit want to change that so that there is a minimum tax on corporation profits of 12.5 percent.
The political establishment have repeatedly claimed that this rate is ‘vital to Ireland’s national interest’. But until Richard Boyd Barrett TD raised the issue in the Dail they never owned up to the fact that corporations in Ireland only pay half of that rate.
The latest available revenue figures for total corporate profits, before deductions and charges, are €61.5 billion but only €4.17 billion is paid in tax. So that is an effective rate of 6.17%.
By enforcing 12.5% as a minimum rate, the state would get a lot more revenue.
There can be no argument about the justice here. One of the most profitable corporations in Ireland is the little known GE Capital Aviation Funding. In 2011, it made a profit of $765 million even though it had hardly any employees.
Yet it paid only 0.5% tax on these profits.
Nobody can justify a situation where a cleaning woman pays a higher proportion of her income in PAYE taxes and USC than does a giant corporation. Our beloved commentators therefore shift the grounds of the argument from justice to ‘realism’.
Would they all run away?
If you insisted Google or GE Capital Aviation paid tax at the same rate as a low paid employee, they claim, they would all run away.
We would then be left without jobs and the economy would start to collapse. So it just lacks ‘credibility’!
The problem with this argument is that every time a proposal is made to take money off corporations, the same threat is made. And it has turned out to be a bluff.
When the minimum wage was first introduced in the year 2000, for example, the UCD Department of Economics predicted it would lead to a flight of foreign investment. Yet foreign investment actually increased!
It is an instructive example of how these scare stories do not add up or make sense.
The simple fact is that US corporations are getting such vast profits from Irish workers, that they can well afford to pay more tax.
In one year recently, US companies in Ireland made $970,000 from every Irish worker they employed and paid only a tiny fraction in tax.
Even if they were forced to pay 12.5%, they would still be left with $780,000 in profit per worker. Why therefore would they want to move wholesale out of Ireland – and take the cost of such a move?
Moreover, if it is not possible to push up tax on profits, why does the Irish government have a higher rate for some companies than others?
Even though it is less well known, Ireland actually has two rates of tax on profit – 12.5% on traded income and 25% on non-traded income. The latter includes items like profits earned from interest, foreign income or patent fees.
If talk of raising taxes would frighten companies away, why do bank and finance houses not flee Ireland when they are officially supposed to pay double the more commonly known rate.
But wouldn’t it cost jobs?
A key assumption made in the debate about corporation taxes is that hitting foreign multi-nationals would mean a massive loss of jobs.
Few people are aware that foreign multi-nationals only employ 7 percent of the overall workforce. The vast majority of people work for Irish companies who have little option but to stay in Ireland.
By pursuing a policy of reducing tax on all corporations, the state has no option but to increase taxes on PAYE workers. There is in fact a direct link between low taxes in profits and high
taxes on wages.
A worker in Ireland who is paid more than €33,800 will pay 50% of every cent earned after that when account is taken of the Universal Social Charge.
A similar worker in Germany would have to earn €250,730 before they would start paying tax at the rate of 45 percent of every cent earned over that figure. Why do Irish workers pay such high rate of tax at a comparatively low threshold? It can only be because the tax take from corporations – and the wealthy generally – is low and is subsided by the high taxes on PAYE workers.
This is not only unfair; it also leads to less employment. The burden of paying for the economic crisis was shifted onto workers through higher PAYE taxes, indirect taxes and new charges.
This in turn meant that they have less money in their pockets to spend on goods in local shops. As a result there is less demand in the economy and therefore less jobs. Subsidising corporation with low taxes on their profits, therefore, takes money out of an economy and reduces employment.
A development strategy that relies on Ireland’s status as a tax haven is also extremely precarious. The US House of Congress and OPEC are already – for their own reasons- looking at how to close down the tax loopholes that companies such as Google or Apple enjoy. No matter what the great army of accountants and tax planners may feel, it is necessary to look in other directions.
There is no reason, therefore, why a left government could not impose extra taxes on corporations- in order to reduce the tax burden on PAYE workers. But if they were to do so, they would have to be willing to face down the economic black mail of the rich. That would mean taking action against companies who set out to sabotage an economy.
Such action might include imposing extra costs on companies who move – for example making them pay back all grants – or taking their assets into public ownership.
The issue therefore is not whether left wing proposals are credible. They question is rather credible for who . And from the point of view of workers and ordinary people they
make a lot of sense.