It’s St. Patrick’s Day and, in a timely fashion, Johnny Isakson, a Georgia-based Republican Senator, has come out in praise of Ireland for nurturing economic growth through its competitive tax policy.

Mr Isakson, a member of the U.S. Senate finance committee which draft U.S. tax laws, commended Ireland’s 12.5 per cent tax rate and encouragement of businesses to establish operations in the country.

I am in full support of the Senator’s sensible, pro-business analysis of the global corporation tax situation.  He rejected an opinion held by the Democrats recently which claimed that the U.S. would not participate in a “race to the bottom” by cutting corporation tax to urge American multinational companies to increase investment on home soil.  On the contrary, Mr Isakson was quoted as saying: ““We have won the race to the bottom.  We have the least progressive, pro-growth tax policy of any country in the world.”

The Senator was speaking during Taoiseach Enda Kenny’s visit to Atlanta, as part of his St. Patrick’s Day trip to America, where he had meetings with directors of major global companies based in this part of the U.S.  Mr Isakson spoke at a reception for Ireland’s Prime Minister, and referred to America’s high tax rate as the main reason why companies are investing more overseas, as well as through purported “corporate inversions”, and also why tax havens are created.

With President Obama wishing to enforce a one-off 14 per cent tax on U.S. multinational firms’ overseas profits, along with a 19 per cent tax on future earnings abroad, massive capital flight still poses a real risk in my view.  Particularly with America’s 35 per cent corporation tax rate.

To my mind – as I stressed before in the American media last year – unless the U.S. reduces its high business tax rate, it will become almost impossible to maintain a competitive edge and remain appealing to investors.  There is, as economists know through the Laffer Curve, a tipping point at which increasing tax becomes unproductive to increasing government revenue.

As such, Johnny Isakson is calling for a so-called territorial tax system, which will see firms pay taxes on profits where earned, and not subjected to a double tax on return to the U.S.  This is pushing businesses to invest revenue in the jurisdictions where they earn money, rather than in America.  Hence a substantial deterrent for domestic economic growth.

As I was quoted as saying last year, “President Obama should stop trying to prevent U.S. companies from lessening their tax burden and instead push to bring America’s tax code in line with the rest of the world’s developed economies.
“Most American companies do want to remain headquartered in America, but the tax situation is making it tough to justify doing so.”

I am confident that if the U.S. becomes more ‘corporation tax competitive’ to come in line with the rest of the developed world, the capital flight threat can be successfully mitigated.

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