Paul L. Caron

Friday, February 8, 2019

The Global Con Hidden In Trump’s Tax Reform Law

New York Times op-ed:  The Global Con Hidden in Trump’s Tax Reform Law, Revealed, by Brad Setser (Council on Foreign Relations):

Last night, President Trump reserved a few minutes of his State of the Union address to praise his tax reform law, which turned a year old last month. To promote its passage, Mr. Trump and his congressional allies promised Americans that drastically lowered corporate tax rates would bring home large sums of capital that had been stashed overseas and finance a surge of domestic investment.

“For too long, our tax code has incentivized companies to leave our country in search of lower tax rates,” he said, pitching voters in the fall of 2017. “My administration rejects the offshoring model, and we have embraced a brand-new model. It’s called the American model.”

The White House argued they wanted a system that “encourages companies to stay in America, grow in America, spend in America, and hire in America.” Yet the bill he signed into law includes a sweetheart deal that allows companies that shift their profits abroad to pay tax at a rate well below the already-reduced corporate income tax — an incentive shift that completely contradicts his stated goal.

Why would any multinational corporation pay America’s 21 percent tax rate when it could pay the new “global minimum” rate of 10.5 percent on profits shifted to tax havens, particularly when there are few restrictions on how money can be moved around a company and its foreign subsidiaries?

These wonky concerns were largely brushed aside amid the political brawl. But now that a full year has passed since the tax bill became law, we have hard numbers we can evaluate.

Tax | Permalink


If Congress wanted to hide its new minimum current rate or condone gimmicky "shifting", why dub the income the catchy and much discussed "GILTI?"

Posted by: Anand Desai | Feb 8, 2019 4:58:08 AM

I am not a fan of TCJA, but Mr. Setser seems uninformed. The offshoring bias he identifies was worse before TCJA. He is correct that TCJA did not eliminate it. But the implication of his article that TCJA created it is simply wrong.

Posted by: Theodore P Seto | Feb 8, 2019 6:37:49 AM

As the Old Establishment loses more of its power, it becomes increasingly shrill in its criticisms. Everything is a "con game,” a "clown car,” a "fraud,” etc. Perhaps they should ask why they lost their power, instead?

Posted by: Mike Livingston | Feb 9, 2019 1:58:40 AM