Arkady
President
For people interested in the nitty gritty of the tax debate, Paul Krugman has done a series of fairly wonkish blog posts looking at it from an angle that hasn't been covered in the mainstream press. Basically, if the corporate tax cut were to work the way its supporters claim it will -- attracting a lot of capital into the country -- this would have a few potentially problematic outcomes. It would drive up the value of the dollar, making US manufacturing less competitive, hurting blue-collar jobs. It would also result in a big trade imbalance. Foreign investors don't invest here just for the fun of it -- they do it in hopes for a future return on investment. So, the money that comes in now would generally be balanced by exported stock shares, which would result in future productivity of the US being shipped out to the foreign owners of our stocks. The calculations being offered up by right-wing propaganda sites like the Tax Foundation to justify the change leave out those impacts entirely.
Among a number of interesting concepts Krugman has explored in this analysis is the idea of "Leprechaun Economics." If you've been to Ireland in the last decade or two, you've probably been struck by a weird mismatch between how wealthy Ireland is on paper, and the subjective experience of being there. On paper, it's one of the richest countries in the world -- right up there with the boutique economies of Liechtenstein, Brunei, and Macau, and well ahead of Switzerland. In terms of GDP per capita, they're more than 20% richer than we are. Yet, when you travel there, it doesn't feel like the gold-plated experience of traveling to a place like Liechtenstein or Switzerland, where you can see the wealth everywhere in luxury cars, designer handbags, and immaculate infrastructure. It feels a bit run down, even in Dublin.... more like Italy than like the richer Western nations.
That subjective impression is born out by how Ireland ranks when it comes to various social measures that tend to be tied to general prosperity (life expectancy, infant mortality, scores on the PISA test, etc.) Its numbers aren't an embarrassment, but they're hardly lighting the world on fire. And in measures of median household and personal income, Ireland is nowhere near the richer countries. Although Ireland is tied with Norway in GDP per capita, median per capita income is 2.4 times higher in Norway. So, why the big gap between how rich Ireland is on paper, and how poor it is from the perspective of those who actually live there? Why is Ireland richer per capita than Luxembourg as a nation, and poorer than Slovenia in terms of actual personal income?
Turns out the, reason is that their tax code is set up to allow corporations to use the country as a tax shelter. So, companies can be structured so that, on paper, a lot of economic activity happens in Ireland, even though it's a meaningless paper transaction. For example, a US affiliate of a company may lease an asset at an inflated price from its own Irish affiliate, depressing the on-paper profit of the US affiliate (to lower the taxes paid), while artificially expanding the on-paper profit of the Irish affiliate (where the taxes won't matter as much). It winds up looking like a lot of production in Ireland, but doesn't actually benefit the Irish. That's Leprechaun Economics.
https://krugman.blogs.nytimes.com/
https://krugman.blogs.nytimes.com/2017/11/14/tax-cuts-and-the-trade-deficit/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
https://krugman.blogs.nytimes.com/2017/11/11/the-tax-foundation-has-some-explaining-to-do/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
https://krugman.blogs.nytimes.com/2017/11/09/leprechaun-economics-with-numbers/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=15F775BB68FEDE2AF1D9801DAD834EDF&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/11/08/leprechaun-economics-and-neo-lafferism/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=EA9C7BF4DF46FD6B078EBE53D2418FC3&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/25/trumps-700-billion-foreign-aid-program/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=C83B750E495FD0A137A3E03E79D6D9C1&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/24/the-simple-and-misleading-analytics-of-a-corporate-tax-cut-more-wonkery/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=0843568783E3EBC7D9B2978471EAB86D&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/21/some-misleading-geometry-on-corporate-taxes-wonkish/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=9586D2692B980A49B1C5D5DFA3C38D31&gwt=pay&assetType=opinion
The result of lower the corporate tax rate here could be similar: we could get a bunch of "on paper" gain, plus some real gains among a narrow financial elite (the highly-paid corporate lawyers, MBAs, and accountants, who shuffle the papers to move the paper gain around the world), but it might not show up as any real prosperity increase for the vast majority of people. And, to the extent it depresses revenues, it could result in them having to pay higher taxes to offset that, or to endure cuts to benefits they rely on.
Among a number of interesting concepts Krugman has explored in this analysis is the idea of "Leprechaun Economics." If you've been to Ireland in the last decade or two, you've probably been struck by a weird mismatch between how wealthy Ireland is on paper, and the subjective experience of being there. On paper, it's one of the richest countries in the world -- right up there with the boutique economies of Liechtenstein, Brunei, and Macau, and well ahead of Switzerland. In terms of GDP per capita, they're more than 20% richer than we are. Yet, when you travel there, it doesn't feel like the gold-plated experience of traveling to a place like Liechtenstein or Switzerland, where you can see the wealth everywhere in luxury cars, designer handbags, and immaculate infrastructure. It feels a bit run down, even in Dublin.... more like Italy than like the richer Western nations.
That subjective impression is born out by how Ireland ranks when it comes to various social measures that tend to be tied to general prosperity (life expectancy, infant mortality, scores on the PISA test, etc.) Its numbers aren't an embarrassment, but they're hardly lighting the world on fire. And in measures of median household and personal income, Ireland is nowhere near the richer countries. Although Ireland is tied with Norway in GDP per capita, median per capita income is 2.4 times higher in Norway. So, why the big gap between how rich Ireland is on paper, and how poor it is from the perspective of those who actually live there? Why is Ireland richer per capita than Luxembourg as a nation, and poorer than Slovenia in terms of actual personal income?
Turns out the, reason is that their tax code is set up to allow corporations to use the country as a tax shelter. So, companies can be structured so that, on paper, a lot of economic activity happens in Ireland, even though it's a meaningless paper transaction. For example, a US affiliate of a company may lease an asset at an inflated price from its own Irish affiliate, depressing the on-paper profit of the US affiliate (to lower the taxes paid), while artificially expanding the on-paper profit of the Irish affiliate (where the taxes won't matter as much). It winds up looking like a lot of production in Ireland, but doesn't actually benefit the Irish. That's Leprechaun Economics.
https://krugman.blogs.nytimes.com/
https://krugman.blogs.nytimes.com/2017/11/14/tax-cuts-and-the-trade-deficit/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
https://krugman.blogs.nytimes.com/2017/11/11/the-tax-foundation-has-some-explaining-to-do/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body
https://krugman.blogs.nytimes.com/2017/11/09/leprechaun-economics-with-numbers/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=15F775BB68FEDE2AF1D9801DAD834EDF&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/11/08/leprechaun-economics-and-neo-lafferism/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=EA9C7BF4DF46FD6B078EBE53D2418FC3&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/25/trumps-700-billion-foreign-aid-program/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=C83B750E495FD0A137A3E03E79D6D9C1&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/24/the-simple-and-misleading-analytics-of-a-corporate-tax-cut-more-wonkery/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=0843568783E3EBC7D9B2978471EAB86D&gwt=pay&assetType=opinion
https://krugman.blogs.nytimes.com/2017/10/21/some-misleading-geometry-on-corporate-taxes-wonkish/?module=BlogPost-Title&version=Blog Main&contentCollection=Opinion&action=Click&pgtype=Blogs®ion=Body&mtrref=krugman.blogs.nytimes.com&gwh=9586D2692B980A49B1C5D5DFA3C38D31&gwt=pay&assetType=opinion
The result of lower the corporate tax rate here could be similar: we could get a bunch of "on paper" gain, plus some real gains among a narrow financial elite (the highly-paid corporate lawyers, MBAs, and accountants, who shuffle the papers to move the paper gain around the world), but it might not show up as any real prosperity increase for the vast majority of people. And, to the extent it depresses revenues, it could result in them having to pay higher taxes to offset that, or to endure cuts to benefits they rely on.