Cuts to Corporation Tax for Transnational Corporations Alongside Cuts in Welfare Benefits and Services won’t build an Ireland of Equals.

I’m a supporter of a progressive taxation regime. What that means is that the richest in society pay more tax than the poorest in proportion to their wealth and income, This means that richer people pay a bigger percentage of tax on their income and wealth than poorer people. It’s based on the notion – from each according to their ability (to each according to their need when it comes to provision of services, etc., like health, education, and housing).

In a capitalist society where the market decides who wins and who loses, who earns and who doesn’t, who becomes rich and who doesn’t, welfare systems have evolved in European states since the late 19th century, to deal with the inequalities, injustices and socio-economic exclusion which the market foments. In the late 1970s/early 1980s there was a fightback against such welfare systems and the regulation of capital which accompanied them, from old style lovers of the market and neo-liberalism was born with the Thatchers and Reagans of the world. They promoted a rollback of public welfare systems, reductions in taxation which had paid for them, privatisation of provision, a removal of societal responsibility for societal problems and the placing of responsibility on the poor, the marginalised to sort out their own problems. They argued that lowered taxation for the rich would encourage the rich to work harder in order to make profits. This could also be enhanced by deregulation – relaxing public controls on how they made profits, so that they could make profits more easily and quicker. It was such a policy which led to the Banking crisis in the mid-2000s when Banks having loaned money they didn’t have, to make more profit, started to go bankrupt. This in turn led to the nationalisation of private banking debt to prop up the capitalist system and to the global economic crisis from 2008 till now.

The policy of low taxation of the rich was based on a number of premises such as freedom of the individual from government constraints. The argument was that in the pursuit of profit some of the benefits of that profit would trickle down to the punter on the ground, in terms of jobs or cheaper consumer goods. However, there was no notion that this would create a world of equals. Indeed inequality was lauded by Milton Friedman, Hayek, Thatcher and Reagan. Inequality created incentives for the rich to make more money.
A small number of socialists argued against this policy. They said that a society with gross inequalities was a dysfunctional society. It led to poverty, ill-health, poor housing, poor education, on the part of the poor, as well as promoting social exclusion, social divisions and social conflict. It was basically wrong. They argued for greater societal planning and responsibility for social and economic need, greater and progressive taxation to provide for societal needs and greater regulation of profit making ventures to ensure that private greed did not interfere with public need.

By the mid-2000s, a range of academic studies began to argue that growing global inequalities were a threat to global sustainability, health and well-being e.g. Wilkinson and Pickett, 2009. Even the OEDC got in on the act with its monumental report in 2008 ‘Growing Unequal? Income Distribution and Poverty in OECD Countries’, follow in 2015 by ‘In It Together: Why Less Inequality Benefits All’.
In recent years, international concern has been raised about the tax avoidance policies of many transnational corporations. Unlike many small indigenous businesses, many transnationals can invest heavily in lawyers and accountants to develop ways of avoiding tax ‘legally’. The result has been that in many low tax economies such as in the 26 County Irish state, many transnational corporations, making billions in profit, pay little or no tax. Such tax avoidance has led even some supporters of neoliberalism to question the logic of low taxation and low regulation, with the OECD, the US Government and the EU all attempting to develop some level of global agreement of taxation levels for transnational corporation and regulation.

All this leads to the question, why would anyone in an atmosphere of welfare cuts, and public sector cuts leading to reduced services and redundancies argue that transnational corporation, making billions in profits should pay lower tax on their profits?

There is an argument that low taxation will attract transnationals to ‘reside’ in areas of low taxation and regulation. And there is no doubt that the Irish state (26 Counties) has benefited from such a policy in the past in terms of raising revenue that would otherwise have gone elsewhere. However, there are so many social and economic arguments against such a policy it is difficult to understand why they are not being heard.

For example, the problem with lowering tax to attract transnationals is that we engage in a race to the bottom with other poorer countries desperate to outbid us in the taxation stakes. Transnationals by their nature have no national or social responsibility or loyalty. They are solely interested in profit and will go where the profit is greatest. And when they arrive they invariably price small indigenous companies out of the market. Tesco’s becomes dominant and the corner shop a thing of the past. As a result, some European states have attempted to develop different corporation tax levels (tax on the profits of companies) where smaller (mainly indigenous companies) pay less in tax than bigger (often transnational corporations). There’s a logic to this because smaller indigenous companies are more likely to remain due to social and family ties and social and national responsibility.

One problem (of many) of the EU is that local indigenous companies cannot be favoured over other EU companies in terms of taxation (due to EU competition rules), however, smaller companies can be treated differently to richer companies (and the smaller ones are invariable indigenous and more likely to stay and grow if supported). Thus is you want to cut corporation cut why don’t limit it to small companies for a few years till they get off their feet. Alternatively leave corporation tax alone and concentrate on incentivising businesses to locate in high areas of unemployment via cuts in rates, infrastructural and training supports, and supports to encourage increased employment. If the desire is to develop a sustainable economy then whilst that relying on transnational corporations may seem like a quick fix it won’t deliver on sustainability.

Ultimately, the biggest argument against cutting corporation tax for transnational corporations is social. It is socially unjust that at a time of welfare benefit and public services cuts, cuts in taxation are also advocated for the richest people in the world. How can it be right that the lowest paid tax payers should pay a bigger portion of their income in tax than some of the richest people in the world? That’s the question which should be raised and should be discussed.

Wilkinson, R., & Pickett, K. (2009). The Spirit Level: Why More Equal Societies Almost Always Do Better. London: Allen Lane.
OECD, (2008) Growing Unequal? Income Distribution and Poverty in OECD Countries, OECD.
OECD, (2015) In It Together: Why Less Inequality Benefits All, OECD.


About Féilim Ó hAdhmaill

Dr. Féilim Ó hAdhmaill is a Lecturer in Social Policy in the School of Applied Social Studies, University College Cork, Ireland. His subject areas are Comparative Social Policy; Conflict Transformation and Peace Building; Community Development and he is Programme Director for the Masters in Voluntary and Community Sector Management. University profile For information on the Masters in Voluntary and Community Sector Management He has a long background working in community and voluntary sector and as a political activist in the North of Ireland. He is a former republican prisoner who spent seven and a half years in prison. He was released from jail in August 2000 under the Good Friday Agreement. He has lectured in social policy at Queens University Belfast and Ulster University and have been a lecturer in University College Cork since 2006.
This entry was posted in Social Policy. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s