Steven M. Rosenthal (Tax Policy Center), Slashing Corporate Taxes: Foreign Investors Are Surprise Winners, 157 Tax Notes 559 (Oct. 23, 2017):
The Unified Framework for Fixing Our Broken Tax Code (the “Big Six” tax plan) would revise business and individual taxes. Most significantly, on the business side, the Big Six tax plan would lower the corporate income tax rate from 35 percent to 20 percent, which would reduce corporate taxes by an average of $200 billion a year, or $2 trillion over the 10-year budget window. However, in the short run, a surprisingly large portion of this relief would end up in the pockets of foreign investors.
There is considerable debate among economists about the long-run incidence of a corporate income tax. Most mainstream economists believe that in the long run a corporate tax cut would benefit all owners of capital and, to a lesser degree, U.S. workers. At the extreme end of the spectrum, the Trump administration claims the pending plan to cut the corporate tax rate would increase wages for U.S. workers by $4,000 or more a year in the “long run.” It does not specify the time needed to reach the long run.
However, in the short run, everyone agrees: A cut in the corporate tax rate would benefit the current owners of U.S. corporate equity. I estimate that foreign investors own about 35 percent of U.S. corporate stock and thus would receive about 35 percent of the short-run benefit. This translates to approximately $70 billion a year, about three times the $23 billion that all middle-income households would see under the preliminary estimates of the Big Six tax plan. I also explain why the short run relief for foreign investors could persist for many years.
New York Times op-ed: Trump’s $700 Billion Foreign Aid Program, by Paul Krugman (Princeton):
OK, this analysis from Steven M. Rosenthal at the Tax Policy Center is revelatory. It makes a simple point, but one everyone — myself included — somehow missed: the Trump tax plan is a huge giveaway to foreigners. Among other things, this means that the tax plan almost certainly reduces U.S. welfare even if you ignore distributional issues. This observation should transform discussion of the whole issue, at least among economists, although my cynical guess is that Republican-leaning academics will ignore it. ...
[U]nless a lot of tax-paying capital comes in, the overall effect will be to make the U.S. as a whole poorer — even ignoring the fact that we’re cutting taxes for wealthy investors and will have to offset by, say, taking health care away from the poor.
Is it harsh to call the Trump tax plan a $700 billion foreign aid program? Yes. But it’s also completely fair.