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AS THE US goes to the polls, there’s no better time to look at what a new president of the most powerful nation on earth could mean for little old Ireland.
In short – we don’t really know.
The two presidential candidates haven’t announced any hard policies yet where we could quantify the likely effect, so any analysis will be based around educated guesses.
But with that caveat, there seems to be two major risks for Ireland.
Both of these would be more likely if Donald Trump wins – the general view is that it will likely be business as usual if Kamala Harris triumphs.
The first is that American companies could be less likely to invest in Ireland in the future.
The second – and potentially more significant one – is that a re-working of US tax law could eventually lead to a major drop in Ireland’s corporate tax take.
Let’s have a quick look at number one before moving onto number two.
It has previously been suggested that a Trump presidency could trigger an exodus of US multinationals from Ireland.
This would of course be devastating. Directly and indirectly, it’s estimated that jobs related to US multinationals operating in Ireland account for about 15% of our labour force.
There was also a real reason to be worried – this outcome was the stated goal of one of Trump’s advisors during his first presidency, who said he wanted to use tax cuts to tempt multinationals back to the US.
But in short – things didn’t work out that way. It was estimated that about 155,000 people were directly employed by US multinationals in 2016. That number has since swelled to over 200,000, with many large companies investing billions here in the intervening years.
The US actually did change its tax rules, significantly lowering its corporate tax rate from 35% to 21%. It also gave a tax break for multinational companies to move profits which were held in countries such as Ireland back to America.
And yet, US multinationals continued to invest in Ireland and grow their operations here.
The reasons for that are likely manifold.
Apart from the fact that Ireland still had a corporate tax advantage with its 12.5% rate, it was also viewed as an ideal entry point to the European market for US firms due to its location and the fact that it’s an English-speaking country.
This will still hold true if there’s a second Trump presidency.
But our tax advantage could be wiped out. Trump is proposing lowering the US tax rate even further, to 15%. This is the exact 15% tax rate which Ireland recently introduced as part of an international agreement setting out minimum charges for global companies.
So, the theory that Ireland’s low corporate tax rate is no longer the main driver of our success at securing foreign investment could soon be put to the test.
It’s fairly unlikely that there would be any significant exodus of US companies from Ireland in any case. Most have already invested a significant amount of time and money building their operations here and would be unlikely to throw that to one side.
What could happen though, is that US companies may be less likely to make future investments in Ireland.
This could have a longer term impact and could potentially make it harder for the Irish state to secure more jobs.
Linked to the last issue, and perhaps a more immediate concern, is that there could be a change in the US tax code which ends Ireland’s years-long corporate tax bonanza.
As explained previously, Ireland has been a massive winner from global profit shifting.
Various international tax policies have resulted in many US multinationals moving their profits through Ireland, with Ireland then taking a slice of the profits.
This has contributed to our corporate tax boom. In 2014, Ireland took in just under €5 billion in corporate tax. As of 2023, that number had surged to just under €24 billion.
This massive increase means corporate tax revenues are now much more important to Ireland’s financial health.
Most of this money comes from US multinationals, with active encouragement from the Irish government. A tax break meant that many US multinationals moved their intellectual property (IP) to Ireland.
This meant that more of their money ended up here, which meant we ended up taking more of it in tax.
But while this has been great news for Ireland, the US is not happy.
In short – many in the US view this as money which should be going to the US, rather than Ireland.
Trump could aim to change US tax rules to tempt American companies to shift their IPs back to the US.
This could then lead to a sharp drop in the amount of money being shifted through Ireland, which would then mean we collect less in corporate tax.
How big an impact could this have?
Well, a study published by the Department of Finance earlier this year found that half of Ireland’s €24 billion corporate tax take in 2023 – about €12 billion - “could be windfall in nature”.
This means that there is a very real risk that, if Trump changed the tax laws in a way that resulted in less profit shifting to Ireland, we could very quickly be down €12 billion a year.
That would have a devastating effect on the country. All of a sudden, rather than running a healthy surplus, Ireland would be in a financial deficit.
This means that measures such as the tax cuts the government has introduced in recent years would almost certainly be off the table in future budgets.
It would also make it harder to find money for vital services. The ever money-hungry Department of Health / HSE has made a habit of going over its annual budget and coming back to the government asking for more.
That habit has been enabled by the corporate tax windfall. Without it, there’d likely have to be a compromise found somewhere.
Money to spend on other vital infrastructure, such as transport and housing, would also be at risk.
Basically – in the last few years, corporate tax has been acting as a money tree for Ireland.
A Trump presidency has the potential to bring that to a halt.
As stated, this is all still in the speculative phase.
Even if Trump does win, it’s not clear if his policies would cause either of the two problem scenarios for Ireland. But at the least, both would seem to align with his intentions.
Of the two, we should probably be more concerned about the second.
Less investment from US multinationals would no doubt be a blow, and could have a major negative impact on the economy in the long term.
But the corporate tax problem could have much more immediate implications.
The endless windfall is the way things are being funded right here and now – despite the government being warned over and over again that maybe we shouldn’t rely so heavily on money which could quickly dry up.
If that money dries up, things could get very serious for Ireland, very fast.
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