Dr. Tom McDonnell:

There has been a great deal of research from the United States on this issue. It is probably fruitless to look at cross-country comparisons because the marginal tax rate is one of thousands of factors that affect employment rates within countries. It is more useful to look at a single country over time. In the United States, there have been fairly dramatic increases and decreases in the marginal tax rate over more than a century. Over that time, there has been no relationship between marginal tax rates and economic growth or employment growth. In fact, the golden era of the United States between 1945 and 1973 was the period when marginal tax rates were at their highest. That is a fact, but it does not mean there is a causative relationship. The literature suggests that whether a country has a tax burden of 20%, as it is in the United States, or of 50% to 55%, as it is in Denmark, makes very little overall difference to economic growth in the long run.

While the composition is obviously important, other factors, including the productivity of the economy, are much more relevant. Therefore, our emphasis is on things like child care, education, infrastructure and research and development, which are the things that will generate long-run economic growth and the accruals in well-being and quality of life that will follow. The marginal tax rate kicks in at a very low point in Ireland. That is correct. It is just a fact. However, the effective rate is not high. It is low because we have a very generous system of tax credits.