Impact of corporate tax cut / Leprechaun Economics

[Arkady]

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&region=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&region=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&region=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&region=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&region=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&region=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&region=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.

 

[marvin martian]

LOL!

Let's take a trip down memory lane. Here's Krugman's take on the markets after the election of Donald Trump:

It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?

Frankly, I find it hard to care much, even though this is my specialty. The disaster for America and the world has so many aspects that the economic ramifications are way down my list of things to fear.

Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never.

Let's call it the Krugman "massive devaluation" effect. LOL! I wonder if he took as big a hit as you after the election?

 

[Arkady]

LOL!

Let's take a trip down memory lane. Here's Krugman's take on the markets after the election of Donald Trump:



Let's call it the Krugman "massive devaluation" effect. LOL! I wonder if he took as big a hit as you after the election?

Did you have any thoughts about the subject at hand, or is that a bit out of your depth?

 

[marvin martian]

Did you have any thoughts about the subject at hand, or is that a bit out of your depth?

Your surrender is noted. See you next time!

 

[Arkady]

Your surrender is noted. See you next time!

How could I surrender? You didn't even post on the topic.

 

[marvin martian]

How could I surrender? You didn't even post on the topic.

Of course I did, I pointed out what a disgraceful partisan hack Krugman is, and what a pathetic DNC lickspittle you are. That's always on topic.

 

[Arkady]

Of course I did, I pointed out what a disgraceful partisan hack Krugman is

Oh, I see -- we're coping with your reading difficulties again. The topic wasn't Krugman. It was corporate tax cuts and leprechaun economics. Krugman was simply a person who'd made some arguments on those topics. So, did you have any thoughts about the topic at hand, or is it out of your depth?

 

[marvin martian]

Oh, I see -- we're coping with your reading difficulties again. The topic wasn't Krugman. It was corporate tax cuts and leprechaun economics. Krugman was simply a person who'd made some arguments on those topics. So, did you have any thoughts about the topic at hand, or is it out of your depth?

My thoughts on the topic are that you're using the writings of a disgraced partisan hack to further your flaccid, DNC-funded attempts to attack our government at any cost. Both you and Krugman humiliated yourselves publicly before and immediately after the election with laughably infantile, drama-queen "predictions" that make both of you look like the child-minded morons you are.

 

[Arkady]

My thoughts on the topic .....

Let me stop you right there and get back to the subject at hand: do you have any thoughts on corporate tax cuts and the dynamics of "leprechaun economics"? Or is that out of your depth?

 

[Spamature]

Here is a though for today.

In Detroit they're ripping out the wiring an plumbing from abandon buildings and shipping overseas to build foreign infrastructure.

The GOP tax cut is does that one better. It's more akin to ripping out the plumbing and wiring from occupied buildings and shipping it overseas to build their infrastructure. .

 

[marvin martian]

Here is a though for today.

In Detroit they're ripping out the wiring an plumbing from abandon buildings and shipping overseas to build foreign infrastructure.

The GOP tax cut is does that one better. It's more akin to ripping out the plumbing and wiring from occupied buildings and shipping it overseas to build their infrastructure. .

Calling that a thought (or a "though" in your case) is quite a stretch.

 

[Spamature]

Calling that a thought (or a "though" in your case) is quite a stretch.

Having a few peanuts with your troll, eh Marv ?

Use a napkin after you're done.

 

[marvin martian]

Having a few peanuts with your troll, eh Marv ?

Use a napkin after you're done.

You need to do a better job managing your coprophilia. There's medication available I'm sure.

 

[Spamature]

You need to do a better job managing your coprophilia. There's medication available I'm sure.

I'm not the peanut picker

 

[marvin martian]

I'm not the peanut picker

Of course you are.

 

[justoffal]

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&region=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&region=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&region=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&region=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&region=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&region=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&region=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.

Krugman has a spectacular record of being diametrically inaccurate. Wanna know whats coming economically? Just read Krugman and predict the opposite.

Case in point....Driving UP the value of the dollar? UM.....I'm not sure which one of his prescription medications he was on when he wrote that but perhaps he has forgotten the role of the Federal reserve ...that's what they do....they keep the exchange rates healthy.
It is highly questionable that an increase in productivity is bad for the exchange rate since it has no way of measuring the total effect of the trend that it creates over a period of years....a far more complex issue than simple productivity versus fiat balance. But then again Krugman is more of a political writer than an economist and he manages to spell things out in politics instead of analysis.

I have no doubt in my mind that if Hillary were the POTUS he would have produced an equally scholarly argument stating exactly the opposite of his latest manifesto a la Trump-hate.



JO

 

[RickWA]

Krugman has a spectacular record of being diametrically inaccurate. Wanna know whats coming economically? Just read Krugman and predict the opposite.

Case in point....Driving UP the value of the dollar? UM.....I'm not sure which one of his prescription medications he was on when he wrote that but perhaps he has forgotten the role of the Federal reserve ...that's what they do....the keep the exchange rates healthy.
It is highly questionable that an increase in productivity is bad for the exchange rate since it has no way of measuring the total effect of the trend that it creates over a period of years....a far more complex issue than simple productivity versus fiat balance. But then again Krugman is more of a political writer than an economist and he manages to spell things out in politics instead of analysis.

I have no doubt in my mind that if Hillary were the POTUS he would have produced an equally scholarly argument stating exactly the opposite of his latest manifesto a la Trump-hate.



JO

Imagine...Krugman is (as always) lamenting money being diverted from the state coffers back to the people and enterprises who earn it. And, to make this argument, he conceives of the harm these funds will cause to the economy.

That's right. Transfer this money to the state, because private allocation is far too dicey. This is the central point to bear in mind as we watch "collectivekady" make his DNC-bankrolled posts.

...And I make note of this as a guy who OPPOSES both tax packages (that of each the House and Senate). Both of these policies suck and are imbalanced, but not for the commie Arkrugman reasons cited. We need to rework our tax system, not merely screw around with rates and brackets.

Our pols are intellectually and morally deficient morons - on both sides of the filthy aisle.

 

[Capitalist]

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&region=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&region=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&region=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&region=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&region=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&region=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&region=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.

You must be digging Trump's tax plan in which you can no longer deduct state income tax from your federal income tax.

. . .'Cuz high taxes don't negatively impact the economy, right? Massachusetts gets a fat tax increase while Florida and Texas feel no impact whatsoever.

It's great to be taxed, eh?

 

[Boca]

Oh, I see -- we're coping with your reading difficulties again. The topic wasn't Krugman. It was corporate tax cuts and leprechaun economics. Krugman was simply a person who'd made some arguments on those topics. So, did you have any thoughts about the topic at hand, or is it out of your depth?

I do...you say...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.

Attracting capital is not the goal, making American businesses competitive again is. That's been stated time and time again and is intuitively obvious, yet Krugman claims the opposite.....making US manufacturing less competitive, hurting blue-collar jobs. It would also result in a big trade imbalance.

Reconcile that....shouldn't take 500 words but I suspect out of necessity you'll grace us with that or more.

 

[Raoul_Luke]

The simple answer is, of course, Krugman is wrong. His entire premise is based on the (disgraced) Keynesian notion that a strong currency is bad for an economy. Just taking our recent history, it easily (once again) debunks that collectivist notion:



As you can readily see, the two periods corresponding to a protracted strengthening dollar, the mid-eighties and late-nineties, were both marked by increasing industrial production:



And increasing real median incomes:



I think we can all agree that what really scares the bejesus out of big government collectivists like Krugman (and you) is that we might all come to understand that the most prosperous economic periods are built on the kind of free market economic (and anti-big government, central planning) policies that tend to support a strengthening currency. As for the notion that foreign investment flowing in will result in (later) productivity flowing out, people do invest for a (future) return on their investment, and that is precisely the process that is jump-started by an appreciating currency. The idea that foreign investors will subsequently take money out of an economy with an appreciating currency, by repatriating their profits into their economy with a less robust currency regime is, quite simply, bullshit. They will reinvest their profits in the US economy, unless we subsequently (again) succumb to the collectivist siren song as sung by the likes of Krugman, and we start once again punishing investment.

Everything you believe about economics is wrong. Find somebody besides Krugman to read and you might learn something useful. You can't do better than to start here:

http://www.alhambrapartners.com/author/jsnider/

Nobody understands international economics, especially with respect to geopolitical currency policies, more than that guy.