Don’t Blame Ireland’s Mess on Low Corporate Tax Rates

Ireland is in deep fiscal trouble and the Germans and the French apparently want the politicians in Dublin to increase the nation’s 12.5 percent corporate tax rate as the price for being bailed out. This is almost certainly the cause of considerable smugness and joy in Europe’s high-tax nations, many of which have been very resentful of Ireland for enjoying so much prosperity in recent decades in part because of a low corporate tax burden.

But is there any reason to think Ireland’s competitive corporate tax regime is responsible for the nation’s economic crisis? The answer, not surprisingly, is no. Here’s a chart from one of Ireland’s top economists, looking at taxes and spending for past 27 years. You can see that revenues grew rapidly, especially beginning in the 1990s as the lower tax rates were implemented. The problem is that politicians spent every penny of this revenue windfall.

When the financial crisis hit a couple of years ago, tax revenues suddenly plummeted. Unfortunately, politicians continued to spend like drunken sailors. It’s only in the last year that they finally stepped on the brakes and began to rein in the burden of government spending. But that may be a case of too little, too late.

The second chart provides additional detail. Interestingly, the burden of government spending actually fell as a share of GDP between 1983 and 2000. This is not because government spending was falling, but rather because the private sector was growing even faster than the public sector.

This bit of good news (at least relatively speaking) stopped about 10 years ago. Politicians began to increase government spending at roughly the same rate as the private sector was expanding. While this was misguided, tax revenues were booming (in part because of genuine growth and in part because of the bubble) and it seemed like bigger government was a free lunch.

But big government is never a free lunch. Government spending diverts resources from the productive sector of the economy. This is now painfully apparent since there no longer is a revenue windfall to mask the damage.

There are lots of lessons to learn from Ireland’s fiscal/economic/financial crisis. There was too much government spending. Ireland also had a major housing bubble. And some people say that adopting the euro (the common currency of many European nations) helped create the current mess.

The one thing we can definitely say, though, is that lower tax rates did not cause Ireland’s problems. It’s also safe to say that higher tax rates will delay Ireland’s recovery. French and German politicians may think that’s a good idea, but hopefully Irish lawmakers have a better perspective.

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Column on TSA Wins “Sentence of the Day” Contest

Our airport security system is a giant hassle. It’s very costly. And now we have the incredible privilege of having government bureaucrats grope our private parts.

So are we getting big benefits to offset these high costs? Mark Tapscott of the Washington Examiner has a column about the TSA that includes a single sentence (actually, a fragment of a sentence) that pretty much tells us what we need to know.

…despite years of imposing increasingly invasive new security procedures, the TSA has yet to catch one terrorist.

To be fair, one interpretation of this sentence is that the TSA and its overseas counterparts have done such a great job that terrorists have given up. Yet the “shoe bomber” made it on a plane, as did the “underwear bomber.”

Moreover, the Government Accountability Office warns that it’s unclear whether the new body-imaging approach would have caught the underwear bomber. And since this approach apparently is unable to detect certain types of bombs hidden in body cavities (use your imagination), we’re still left with the fundamental issue of whether the bureaucracy is imposing high costs on innocent people without providing a fail-safe way of stopping bad guys.

That being said, I confess that I’m amazed that terrorists haven’t succeeded in knocking down more planes since 9-11. Somebody, somewhere, deserves some credit. After all, protecting us from aggression is one of the few legitimate responsibilities of government.

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The Few, the Brave, the…um…Old?

Time for a brief detour from political commentary.

We finally got the picture from last month’s softball world series tournament in Arizona. These amazing specimens of manhood are the “Beltway Bandits,” our over-50 team. As noted in an earlier post, we made it to the final day but didn’t come back with a first-place trophy.

Liberals should be happy with our team’s diversity. No, I’m not talking about racial composition. I’m referring to the teammate with strange preferences. I won’t identify him, but suffice to say his favorite song is a modified version of a Nat King Cole classic that he calls “Unforgettable Ewe.”

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