By PAUL KRUGMAN
I don’t know about you, but I’m still in a state of mostly happy shock over the enactment of Joe Biden’s American Rescue Plan. Obviously, we won’t be fully able to assess the plan’s effects until some time has passed, but it’s both huge and hugely ambitious. Among other things, it’s expected to cut child poverty roughly in half, essentially overnight.
Biden and his allies have achieved more in two months of unified control of Congress and the White House than Donald Trump and company achieved in two years.
But here’s the thing: While Republicans failed to kill Obamacare, they did enact a big tax cut, with a headline price tag roughly the same as the American Rescue Plan. Yet these days you hardly ever hear people talking about the Tax Cut and Jobs Act, enacted in December 2017.
Why did such a large bill, one that Mitch McConnell assured his colleagues would give them a big electoral advantage, more or less disappear from our political discourse?
A PROBLEM FOR REPUBLICANS
Well, Democrats have had other fish to fry, although Biden is reportedly hoping to raise taxes on the rich, so the subject may make a comeback. As for Republicans, they have a problem. Their tax cut didn’t deliver what it promised: a big surge in business investment. What it did deliver was a big windfall, not just to the wealthy, but to wealthy foreigners. Not something they want to highlight.
But the promised investment surge never arrived. It turned out that while U.S. corporations appeared, on paper, to have big investments overseas, many of those assets were basically fictitious: companies had been juggling the books to report big profits in low-tax jurisdictions like Ireland, which made it look as if they were investing a lot of capital there, but that didn’t mean they were really building a lot of factories or buying a lot of equipment. So, there wasn’t actually a big hoard of capital ready to return if taxes were cut, and the big tax cut did basically nothing for business investment in America.
WINDFALL FOR WEALTHY STOCKHOLDERS
The core of the (Trump) Tax Cut and Jobs Act was a big slash in the tax rate on corporate profits. This was supposed to make investing in the United States much more attractive, drawing in money that would otherwise have been invested abroad. And as companies expanded their U.S. operations, they would need more workers, raising the demand for labor, and hence driving up wages. So the claim was that what looked on the surface like a big tax cut for wealthy stockholders was really going to go mainly to workers.
What that meant in turn was that what looked on the surface like a big tax cut for wealthy stockholders — who are, after all, the ultimate beneficiaries of after-tax corporate profits — was, in fact, a big tax cut for wealthy stockholders.
MANY BENEFICIARIES WEREN’T EVEN AMERICANS
And there’s another twist: Many of those wealthy stockholders weren’t even American. A recent report from the nonpartisan Tax Policy Center estimates that 40 percent of the equities in U.S. corporations are foreign-owned, which means that to a first approximation, foreigners received 40 percent of that corporate tax cut.
At some level this arguably shouldn’t matter; a tax break for oligarchs, princelings and sheiks sounds worse than one for domestic billionaires, but neither does much for ordinary families. But it doesn’t sound great.
So Republicans stopped talking about their big tax cut. The only major legislation enacted under Donald Trump is rapidly fading from memory.
(Paul Krugman has been an Opinion columnist since 2000 and is a New York Times opinion columnist and Distinguished Professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. Reprinted from the New York Times.)