One analyst willing to do so is Daniel J. Mitchell, a tax expert at The Cato Institute. In seeking the real culprit behind the Irish implosion – and for that matter the broader European debt crisis – Mitchell examined nearly three decades worth of Irish government expenditures and tax receipts. In doing so he found that from 1983-2006 both expenditures and receipts in Ireland were on similar upward trajectories – a regrettable result of the Irish government’s insistence on spending every new dime that came into its coffers. Beginning in 2007, however, these lines began moving in opposite directions.
“When the financial crisis hit a couple of years ago, tax revenues suddenly plummeted,” explains Mitchell. “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.”
In addition to profligate spending, Mitchell points to the adoption of the Euro as another contributing factor in Ireland’s decline.
“The one thing we can definitely say … is that lower tax rates did not cause Ireland’s problems,” Mitchell concludes. “It’s also safe to say that higher tax rates will delay Ireland’s recovery.”
Irish negotiators are holding firm thus far against European demands – making the case that if Germany and France want to recoup their investment in Ireland, they will not choke off the nation’s economic growth.
Frankly, no European taxpayers – Irish or otherwise – should be forced to pick up the tab for this disaster. Similarly no European taxpayers should have been forced to bail out Greece earlier this year. Governments on both sides of the Atlantic must learn the hard way that they are to restrict themselves to core functions – a process that starts with telling the truth about how they landed in their current predicaments.