In the summer of 2016, the Central Statistical Office (CSO) reported something astonishing: Ireland’s small nation’s gross domestic product had risen 26 per cent in the previous year (a number that would later be revised upward). It would have been an amazing achievement if the growth had actually happened.
But it hadn’t, as government officials acknowledged from the beginning. It was, instead, an illusion created by corporate tax games. At the time, I dubbed it “leprechaun economics,” a coinage that has stuck; luckily, the Irish have a sense of humour about themselves.
What really happened? Ireland is a tax haven, with a very low tax rate on corporate profits. This gives multinational corporations an incentive to create Irish subsidiaries, then use creative accounting to ensure that a large share of their reported global profits accrue to those subsidiaries.
In 2015 a few big companies appear to have gotten even more aggressive about their profit-shifting, which led to a surge in the value of production they reported doing in Ireland, a surge that didn’t correspond to anything real. To understand the big corporate tax reform proposed by the Biden administration, what you need to know is that it’s all about the leprechauns. One way to think about the huge corporate tax cut the Republican party rammed through in 2017 is that its underlying premise was that the leprechauns were real. That is, the tax cut’s architects insisted that corporations had been moving operations abroad to avoid US taxes, and that slashing those taxes would bring millions of jobs back home.
