Today's Sunday Tribune column...
I for one welcome our new Democratic overlords.
Richard Delevan
And now for the bad news. Post-election Wednesday morning felt pretty good. Flesh-eating hospital superbugs are more popular than George W Bush and his Republican comrades in Congress. Democrats are 'our' party, particularly well-disposed to the Irish - hell, built by the Irish in America. They'll do the right thing on immigration reform. They'll rein in Bush foreign policy. The sun will shine again and soft rain will fall on the world's crops.
As I wrote a couple of weeks ago, after a lifetime of feeling more or less sympathetic towards Republicans, I am glad to see them thrown out of power. So for once I'm in the majority here. Hooray.
But.
Democratic victories in Congress may be popular. But they may be a disaster for the Irish economy.
In January, Bertie Ahern will unveil the new National Development Plan, which has as its central objective establishing Ireland as an international centre for research and development.
This is in fact not a new objective. Once it became clear that Celtic Tiger wages would quickly erase Ireland's advantage of relatively cheap English-speaking labour - policy shifted to move Ireland 'up the value chain'.
Smart Irish policymakers - several key civil servants, a few farsighted elected pols like Mary Harney, Charlie McCreevy, Bertie and Brian Cowen, and an unofficial cadre of advisers from the private sector acting for the good of the country - realised in the late 90s that for a small open
island economy to prosper it would need something more than cheap wages, Guinness and the craic.
So they focused on persuading big technology and pharmaceutical companies to move their intellectual property here. In 1998, the Irish corporate tax rate was slashed from 32% to 12.5%, still among the five lowest in the world. The US federal corporate tax rate is 35%.
In 2004, Ireland simply eliminated the 9% tax on the sale or transfer of intellectual property and launched an R&D tax credit.
Microsoft was among the first takers. In 2005 the Wall Street Journal revealed that a little company called Round Island One had become Ireland's biggest taxpayer. Round Island One is a brass-plate office set up in 2001 - a subsidiary of Microsoft. It booked profits of more than $9Billion in 2004. It paid $300million in taxes to the Irish exchequer.
Much of Round Island's revenues come from the license fees from its software, which was by and large developed in the US. The Journal estimated that Microsoft saved itself $500m in taxes it would have otherwise paid to the US treasury.
Dozens of other US technology companies followed Microsoft's example. And that doesn't even cover the far more obvious dodge of transfer pricing, where companies move money between US headquarters and subsidiaries to hide profts from the taxman. Pharmaceutical giant GlaxoSmithKline paid $3.4Bn to the IRS in September, the largest tax deal in US history, to
settle claims it had cooked its books using transfer pricing.
Some clever people working for the US Congress, however, copped onto this practice four years ago, and forced through a law called the Reversing the Expatriation of Profits Offshore - or REPO (geddit?). This went through in 2002, gently warning some of America's biggest corporate names that they wouldn't be allowed to pretend they were not American companies and should pay more of their taxes at home. It wound up prompting a one-time sending
home of cash in 2002 that impacted on Ireland's balance sheet.
Now, consider one thing. That mini-outburst of outrage emerged from a Republican-controlled Congress, probably most business-friendly since the 1920s.
Democrats, like Charlie Rangel, the Harlem congressman in line to chair the powerful Ways & Means committee, will not be so gentle. One of Rangel's top priorities will be to make it harder for big companies to avoid US taxes by booking their profits in foreign subsidiaries - like the
corporates that make up the bulk of Ireland's top taxpayers.
American taxpayers have been subsidising public services in Ireland and other 'offshore tax havens' for the past decade. Democrats want to bring that to an end.
You might feel differently about the Democrats you cheered to victory if they succeed. You'd better hope that the definition of 'offshore tax haven' is watered down enough to keep Ireland off that list of villains.
You might miss those Ireland Inc-friendly Republicans yet.
ends
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