Paul Krugman: The Trump Tax Cut and the Balance of Payments=: "It seems likely that the Tax Cuts and Jobs Act will turn out to have been the only major piece of legislation enacted under Donald Trump.... The TCJA played almost no role in the midterms: Republicans dropped it as a selling point, focusing on fear of brown people instead, while Democrats hammered health care. But now... seems like a good idea to revisit the bill and its effects. What I want to focus on in this piece is the effects on the balance of payments. Why?... Because the theory of the case... depended crucially on claims about what tax cuts would do to international movements of capital... [via] the balance of payments...
...A tax cut for corporations looks, on its face, like a big giveaway to stockholders... The claim by tax cut advocates was, however, that the tax cut would be passed through to workers, because we live in an integrated global capital market.... Tax-cut advocates argued... that the rate of return in the U.S., net of taxes, is set by global forces.... Corporate taxes... reducing the rate... should lead to inflows of capital from abroad, increasing the capital stock, which both raises GDP and reduces the rate of return. In the end the after-tax return on capital should be back where it started, with all of the tax cut passed through to wages....
The crucial poin... is that... it’s not an immaculate financial transaction... inflows of capital... a massive wave of real investment in plant and equipment.... The logic of the pro-tax cut case depends on the cut facilitating a period of large trade deficits.... What actually happened to capital inflows?... The data tell a consistent story about what has happened to capital inflows since the tax cut went into effect, which is... nothing much. That elaborate financial dance between corporations and their subsidiaries seems, in fact, to be an accounting maneuver with little real-world relevance. The international consequences of the tax cut appear to be minimal. And that’s a big deal, because promoting capital inflows was at the heart of the... argument for the tax cut.... That argument appears... quite wrong....
What looks like a big giveaway to stockholders is, in fact, a big giveaway to stockholders. And about 35 percent of that giveaway is to foreigners, so the tax cut makes America as a whole poorer.... The moral of this story is that the tax cut seems to have produced some biggish financial activity on the part of corporations, but it’s all basically accounting maneuvers signifying nothing... a tax cut that, surprise, cut taxes on corporations, but had few [other] real consequences...
#shouldread #fiscalpolicy #globalization #orangehairedbaboons
