Some lessons die very hard. After watching a number of high-profile U.K. based companies defect to Ireland, Switzerland, and the Netherlands, the British government launched an effort last year to reform their corporate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system to make the country more attractive to business. In November 2010, the British Treasury released a detailed plan Corporate Tax Reform: Delivering a More Competitive Tax System, which called for reducing the corporate tax rate from 28 percent to 24 percent, reforming their method of taxing foreign profits (i.e.: moving toward a territorial tax systemA territorial tax system for corporations, as opposed to a worldwide tax system, excludes profits multinational companies earn in foreign countries from their domestic tax base. As part of the 2017 Tax Cuts and Jobs Act (TCJA), the United States shifted from worldwide taxation towards territorial taxation. ), and improving the tax treatment of intellectual property.
Interestingly, this is not the first time in which bad tax policy chased businesses, or an entire industry, out of England. As I learned during a recent visit to the Corning Glass Museum in Corning, New York, Waterford Crystal would not likely exist today were it not for the British Glass Excise Acts of 1745. Because those new excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. es raised the price of raw materials for the English glass makers, many moved their operations to Ireland.
The Waterford Company was started in 1783 by brothers, George and William Penrose, in the port city of Waterford. The industry thrived for nearly 100 years until, according to the company’s website, the firm closed due to a lack of capital and, ironically, “excessive taxation.” The modern company was started in 1947 and continues to produce some of the finest crystal in the world. Perhaps some of its recent success is due to Ireland’s 12.5 percent corporate tax rate.
Not to take this illustration too far, but U.S. lawmakers have been slow to recognize the effect that the high U.S. corporate tax rate is having on the nation’s competitiveness and the gradual migration of many American industries to low-tax jurisdictions. The sooner we cut our corporate tax rate and reform the way we tax foreign profits as the British doing, the sooner we can reverse these trends.
Author’s photo taken at the display of Anglo-Irish glass at the Corning Glass Museum.