IN THE SHORT-TERM, a Trump presidency will have very little impact on Ireland. Longer term, that might not be the case. It could have major effects on not just the Irish economy but the global economy as well.
Trump has pledged to reduce corporate tax to 15% from the current 35%. When you add on the state taxes that most states charge (like California at 8.8%), you can see why many US companies find Ireland attractive.
If these companies repatriate the funds, they get charged at a whopping rate, so why not leave the money offshore? Apple has more than $200 billion in offshore funds, which is roughly equal to Ireland’s annual GDP! Microsoft has more than $100 billion in cash overseas.
This has helped created the bizarre situation of the companies going to the bond markets to raise funds to pay dividends because the bond rates are so low. Meanwhile, the same firms together have trillions of dollars sitting in offshore accounts because, as Apple CEO Tim Cook recently pointed out, it would cost as much as 40% to send it home.
What could Trump do that would really impact not just Ireland, but indeed the global economy? He could offer a one-off amnesty for companies to bring their money home. He has already proposed offering a 10% one-off tax on any money repatriated over the next 12 months.
There would be conditions attached, such as that they would have to pledge to reinvest the money over a five-year period in their US businesses or else they would be penalised. This would have an immediate impact on the overseas investment programs of US companies.
Trump would have a battle on his hands getting this amnesty through Congress, despite the fact that the Republicans control both the House of Representatives and the Senate, but it would eventually get passed as it would help pay for his proposed income taxes and fund the gap in medical funding when Obamacare is eventually abolished.
Before leaving the subject of Trump, many people have been asking, ‘how did he even get elected?’ Here’s my view:
- Deep down, America is still a divided society and his supporters were much more passionate than Hillary’s supporters. This is why the polls got it so badly wrong. His rallies were much bigger, and he incited them to think that he would be really different
- People just wanted change. The Clintons, Bushes and Obamas have been around seemingly forever. Most people did not really believe his ridiculous statements and saw them for what they were: news-grabbing headlines
- The promise to cut taxes really resonated, now he will have to deliver
- The US electoral system is flawed and needs a major overhaul! The bottom 22 states in population, with 38 million people, have 44 senators, while the largest state, California, has roughly the same number of people and two senators.
So what should Ireland do to stay ahead? We should immediately appoint a minister whose sole function is to manage the day-to-day business relationships with the USA.
Let’s face it, in the greater scheme of things, in both Europe and the USA, we are a minnow with little political or economic influence. That was why we were forced to pay the bondholders, who knew they were taking risks, every euro.
The difference between or relationship with Europe and the USA is that there are around 40 million people with Irish ancestry in America, many of whom hold very senior positions in business.
We would be in a much better position to fight above our weight if we put a highly recognised businessman in government as a minister with special responsibility for US business relationships.
This minister could report to Charlie Flannigan, but it would send an immediate message and make the American companies based in Ireland truly understand that we passionate about maintaining and building our relationship with the USA. We truly want to be their springboard into Europe.
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