As the new administration and Congress prepare for the 2025 tax debate, they should take note of two recent articles in the Wall Street Journal on the experiences of Ireland and the United Kingdom with corporate taxes. These two countries are perfect examples of the benefits of a lower corporate tax rate and the negative consequences of raising the corporate rate.
For years, Ireland’s economy was a basket case, with dismal growth, high unemployment, and low investment and productivity. Young people left the country in droves due to the poor economy, and the national debt rose to 95% of GDP.
In the late 1990s, Ireland reduced its corporate tax rate from 40% to 12.5%, one of the lowest rates in Europe, and the economy boomed. The lower rate attracted new investment and new businesses, and led to higher GDP growth and increased tax revenue. U.S. companies were attracted to Ireland due to the low rate, and many set up their European headquarters there, helping the economy grow.
According to a recent Wall Street Journal article, the Irish government has become “unbelievably rich,” seeing increased tax revenue and investing in two sovereign wealth funds. Their national debt has been reduced by more than 50%. Corporate tax receipts have increased from $5 billion in 2014 to nearly $40 billion this year. The low corporate tax rate, now 15%, is helping to produce so much money the government is “rolling in clover” like never before and planning more tax cuts and spending projects.
While Ireland booms, another Wall Street Journal article notes that U.K. businesses are in revolt against the new Labour budget with the biggest tax increases in three decades and large spending increases. The tax increases, on business, investors, and inheritances, are on top of the U.K. corporate tax rate increase last year which has slowed economic growth to a crawl.
The U.K. increased the corporate rate by a third from 19% to 25% in 2023, and economic growth plunged, dropping from 4.8% in 2022 to 0.3% in 2023, ending the year in a recession. This year, economic growth has limped along at less than 1%, inching up only 0.1% in the third quarter.
The new Labour budget follows the Bidenomics model, increasing taxes, spending, and borrowing in an attempt to spur growth. U.K. businesses say the higher taxes will slow investment, reduce wages and jobs, and drive more businesses and investors out of the country. Labour thinks their new tax and spend budget will boost the economy. But history shows that higher corporate tax rates will reduce long term growth, and as the Wall Street Journal notes, the “U.K. is all but certain to get less revenue, bigger budget deficits, and less prosperity.” It is a lesson Congress needs to keep in mind during next year’s tax debate.
