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Trump's tax policy bad news for Europe?

Donald Trump with Republican Senate leader Mitch McConnell on 10 November 2016, in Washington.
Donald Trump with Republican Senate leader Mitch McConnell on 10 November 2016, in Washington. Reuters/Joshua Roberts
3 min

US President-elect Donald Trump's plan to reduce the country's corporate tax rate has some European countries, especially Ireland, wondering how their economy will be affected.


Donald Trump plans to cut his country's corporate tax rate from 35 percent to 15 percent. He says this will create and protect American jobs, as well as entice foreign investment. This has some European countries with measures in place favouring capital investment worried that they may be less attractive for business.

Ireland, with its 12.5 percent corporate tax rate, has one of the lowest in Europe. Because of this, many American companies, such as heavy-hitters Facebook and Google, have operations there.

Irish concern was amplified when Stephen Moore, one of Trump's economic advisers, said during a radio interview on the BBC on Thursday that the new tax plan "could see a flood of companies leaving Ireland".

How would Ireland be affected?

"The worrying part for Ireland is the commitment of Trump to bring jobs back to America," said Dan O'Brien, chief economist at the Institute of International and European Affairs.

"If the policy became one of identifying American companies that produce abroad, but whose production could happen in the US, then that's a much bigger risk to the Irish economy because there are many many jobs here that American companies account for."

Seven hundred US companies employ more than 100,000 people in Ireland, according to an American Chamber of Commerce in Ireland report.

O'Brien also warns that Trump's plan could "deteriorate in a trade war," as "the US and Europe already have very deep disagreements" on issues of trade.

US benefits still unclear

Even if Trump's tax cuts are approved by Congress, and US companies eventually bring overseas jobs back home, it's not clear how much this will boost the American economy.

While reducing the corporate tax rate by 20 percentage points could attract investment and encourage growth, the loss in tax revenue increase the budget deficit significantly.

Forbes estimates that the deficit could swell up to a trillion dollars if Trump's tax cuts are enacted.

"Tax revenue will decrease, the deficit will increase, so this is a problem for the longterm financial position of the US government," said German economist Stefan Bach of Trump's plan.

"It’s not quite clear what will happen in the US. Trump has said a lot of things, but we have to wait until there is legislation and a precise, concrete plan in text."

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