The Unintended Legacy of the GOP Tax Cut

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Lost in the hoopla over the GOP-backed tax bill that Congress passed and sent to President Trump are statistics showing a steadily expanding global economy.

While tax bill backers promise a domestic economic boom and Trump rails against unfair trade deals, the International Money Fund reports the global economy has grown this year by 4.2 percent. That doesn’t square with all the talk of protectionism. It also suggests that the United States may not be the only kid on the block.

One reading is that the world has become more economically integrated, regardless whether political leaders like it or not. That explains why many US corporations have lobbied against major changes proposed by Trump in the North American Free Trade Agreement or why the 11 other nations that signed the Trans-Pacific Partnership are still pushing ahead even though the United States pulled out.

PwC, a British economic consultancy firm, predicts 2018 will see another expansion of the global economy that is broad-based. One exception noted by PwC will be Britain, which is facing economic headwinds as it tries to negotiate its way out of the European Union following the Brexit vote.

The statistics don’t reflect the damage to regional economies and local communities caused by globalization. But they do reflect what appears like an irreversible force toward more globalization in trade for goods and services and in capital flows.

Conservative-leaning think tanks predict the GOP tax-cut bill will promote economic growth. The Heritage Foundation projects corporate tax cuts will add to US capital stock, but also lower the numbers of hours worked, presumably because of increased investment in automation. The Tax Foundation model, a reliably aggressive pro-growth calculator, predicts tax cuts will boost US Gross Domestic Product in 2018 from 2.01 percent to 2.45 percent, far less than Republican architects of the legislation predicted and not enough to offset the increase in the federal deficit.

U-Penn's Penn-Wharton model, run by a former Bush administration economist, forecasts the GOP tax bill will increase national debt by $1.9-$2.2-trillion by 2027 – after incorporating "dynamic" estimates of economic growth effects.

Amid skepticism the tax bill will stimulate domestic economic growth, many tax advisers think the legislation’s corporate alternative minimum tax provision will encourage more, not less offshore manufacturing. The deferral of tax on foreign income will provide an incentive to keep earnings from foreign operations offshore and to shift profits to offshore tax havens. Ironically, these provisions may bolster US-benefitted global economics.

In his national security speech this week, Trump warned of intensifying economic competition in the world. His solution: To look inward. The data suggests that’s old school. Obsessing about our border security and overlooking the very economic competition he called out in his speech is a strange brew and a broken policy.

When the tax-cut legislation finally passes this week, as expected, there will be a lot of high-fives and political backslaps. Congressional Republicans will have handed Trump his first significant presidential victory and kept a promise to GOP donors.

What may follow is a political uprising over the decidedly non-populist bent of the tax bill and, eventually, an even greater gasp when the tax legislation’s greatest advance is to speed automation and engage in even greater global economic integration. Ironically, that might turn out to be the legislation’s most lasting, if unintended legacy.