Thursday 23 November 2017

Trump tax cut to boost investment here - expert

President-elect Donald Trump
President-elect Donald Trump
Colm Kelpie

Colm Kelpie

A CUT in the corporation tax rate in the United States could see US multinationals investing more overseas, not less - according to a UCD academic specialising in trade and FDI.

Professor Ron Davies said the notion that US firms will not go abroad if president-elect Donald Trump slashes the US rate of corporation tax to 15pc are not backed up by research.

And he said the last time the US introduced a tax amnesty to repatriate overseas profits - another Trump proposal - multinational employment in Ireland increased by 1.3pc.

"Countries with low taxes send out more FDI, not less. This notion that if he [Donald Trump] cuts taxes, US firms are not going to go abroad now, the data tends to reject that. We don't see much evidence of that," Prof Davies told a Department of Finance conference.

The UCD academic, who was born in West Virginia but has lived in Ireland for 10 years, said countries with a high tax rate send out less foreign investment than if the rate was lower.

"They [companies] don't have their own internal financing that they can use to fund FDI," Prof Davies told the Irish Independent.

A top economic adviser to Mr Trump has warned that the incoming president's new tax plans could see a "flood of companies" leaving Ireland.

Business experts have argued that existing investment in Ireland is not under threat, as big US firms here have established operations - but warned future FDI could be put at risk by a rate cut.

However, this is unlikely, according to Prof Davies.

"If you have a low tax rate, firms have money sitting around and they're going to find productive ways to use that. One of the ways in which they do that is they invest overseas," he said.

During the campaign Mr Trump also pledged to have a special one-off corporate tax rate of 10pc to encourage the repatriation of corporate profits held offshore, estimated by Bloomberg to be in the region of $2.4 trillion.

Former President George W Bush introduced a similar amnesty in 2004/2005.

In that year, foreign direct investment in Ireland fell by 10pc, Prof Davies said, as money the firms had "parked" in Ireland were returned to the US to be taxed at the lower rate. The amount of jobs in the multinational sector here, however, actually increased by 1.3pc.

"There's not a lot of evidence for the idea that they're pulling out productive, useful, Irish employment-generating activity," he added.

The material impact on Ireland of a tax amnesty for these companies, Prof Davies said, is likely to be minimal therefore.

"When they got the chance of bringing it [money] back into the US at a very low tax rate, that's exactly what they did, but when back in the US, it didn't create any additional US investment, it didn't create US jobs," the professor said.

"And so, he's [Trump] saying things that on the surface sound fairly reasonable. It brings money back home - but money and investment are different things."

But he added the uncertainty posed by the election of Mr Trump could hinder world trade.

"He has already targeted trade agreements, for example.

"One of the things the data shows again and again and again, is that if you bring trade barriers down, FDI goes up.

"If he's going to go after that. He creates a lot of uncertainty."

Irish Independent

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