The Wonk Room

McCain Calls For Irish Tax Rates

During Friday’s presidential debate, Sen. John McCain (R-AZ) argued that if the United States lowered its corporate tax rate, American businesses would “be able to create jobs, increase your business, make more investment”:

Right now, the United States of American business (OOTC:ARBU) pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent. Now, if you’re a business person, and you can locate any place in the world, then, obviously, if you go to the country where it’s 11 percent tax versus 35 percent, you’re going to be able to create jobs, increase your business, make more investment, et cetera. I want to cut that business tax. I want to cut it so that businesses will remain in — in the United States of America and create jobs.

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The Irish corporate tax stands at 12.5%, not 11, but that’s almost besides the point. McCain’s argument is full of so many other holes, you can drain spaghetti with it:

- America’s Effective Tax Rate Is Comparable To Other G7 Nations: According to a recent U.S. Treasury report, the effective tax rate on equipment financed by equity is 24 percent, the same as the G-7 average. The rate on equipment financed by debt is minus 46 percent, meaning that the government actually subsidizes these investments rather than taxing them.

- America Is The Number One Country To Do Business: The World Economic Forum’s Global Competitiveness Report for 2007-2008 concluded that the United States is most business friendly, followed by Switzerland, Denmark, Sweden, Germany, Finland and Singapore. Ireland came in at number 22.

- Two-Thirds Of Corporations Did Not Pay Taxes: According to last month’s Government Accountability Office (GAO) report, between 1998 and 2005 “about two-thirds of corporations operating in the United States did not pay taxes” because of a variety of corporate tax loopholes.

- US Raises Less Taxes From Corporations Than Ireland: In the United States, corporate revenues as a percentage of GDP was about 2.2 percent; Ireland raised close to 4 percent.

The past eight years of Bushonomics have refuted McCain’s trickle-down argument. In fact, from 2000 to 2006, increased corporate profits did not grow middle class incomes — as “corporate profits grew nearly four times as fast as GDP,” increasing by an estimated 66 percent, the median household income fell by $963, even after inflation.

Unfortunately, rather than “create jobs,” corporations retained their extra profits, invested little in new commercial structures such as factories and office buildings, bought back their own stock, and “increased dividends rather than expand capacity.”

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