Halloween in America
The months continue to fly by here in San Francisco but November is certainly shaping up to be a very interesting month. From my first American Halloween experience (a trip to a local thrift store sorted me out with an authentic 80’s prom dress – cue 80’s prom queen outfit), Donald Trump was voted the 45th president of the United States and I will end the month with yet another key American holiday celebration, Thanksgiving.
The election of Donald Trump was a surprise to many of my Californian colleagues and friends, but as the days pass there is certainly a sense that people must focus on accepting the new leader in the White House and Republican control over all elements of US government. From a tax perspective, reform may seem more achievable where there is now party consensus – lack of such consensus has halted any significant tax reform in recent years. However it is not quite as straightforward as that.
The tax policies put forward during the election campaign by the Republican candidate were far reaching yet costly and while some work was done throughout the campaign to align with Republican House policies, some gaps still exist and producing a finalized tax platform may yet be some way off.
The right leaning Tax Foundation have estimated the cost of the Trump campaign’s proposals to be in the region of $4trillion and the House proposal’s to be in the region of $2.5trillion. It remains to be seen whether these suggested policies on both sides can be achieved in reality, how they can come together to form a combined platform and whether the costs of implementation are palatable from a political perspective.
Both Trump and the House proposals suggest significant corporation tax reform and generous tax cuts for large corporations and high-income taxpayers which, when considered post-election, may risk alienating middle income earners who were the key demographic for Trump in the election.
One of the key features relating to large companies is the proposed reduction of the corporation tax rate with Trump suggesting cutting the rate from 35% to 15% and the House suggesting cutting to 20%. From an Irish perspective, a lot of US companies who have operations in Ireland are certainly interested in the attractive tax regime offered to companies carrying on business in Ireland, and in particular the low corporate tax rate of 12.5%.
On the face of it, a reduction of the US headline tax rate could suggest that US companies would not tax-rate-hunt globally and would be happy to retain all of their activities in the US. However that is a relatively narrow view of the reasons why companies choose to invest in Ireland, or globally for that matter. Companies worldwide, including US companies, have an appetite to access trade markets all over the world and the practicalities and logistics of serving that market mean a local operation is necessary.
The battle for talent
Key talent in these regions also attract companies, skilled workers and language skills etc. Companies I speak to here in the Bay Area are more interested in talent, economics, regulation, business environment, stability and market access than headline tax rates and these are all areas where Ireland continually delivers for companies. Indeed in true Irish fashion even the weather plays a part in attracting global companies – the cold wet climate makes Ireland a haven for data centre investment – we knew the rain would come in good in the end!
So while a lowering of the US corporate tax rate goes some way to align the US regime to that on offer in Ireland, it is a only part of the story and companies will still have commercial reasons to look to global markets. Continued focus on improving the tax regime, as pledged by the Government, will no doubt remain key. However it is vitally important that Ireland continues to service the broader commercial needs of global companies and continue to attract multinational companies. A case of great job done so far and lets aim to stay at the top.
So, with a feeling of Brexit déjà vu, we adopt a wait and see attitude on the implications of the election outcome! Stay tuned for regular updates – it should be nothing if not entertaining!
In the meantime wish me luck cooking Thanksgiving dinner! I will need it!