T
rump’s $700 Billion Gift to Wealthy Foreigners
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Why is Donald Trump planning to give away $700 billion — that’s billion, with a “b” — to foreigners, no strings attached? You probably didn’t know that he’s planning to do this. In fact, he himself almost surely has no idea that he’s planning to do this. But it would be one clearly predictable consequence of the tax “reform” he and his congressional allies are trying to pass.
Some features of the Trump tax plan are still up in the air. For example, we don’t know exactly how upper-middle-class taxpayers will be punished — will they lose their deduction on state and local taxes, some of their tax breaks on retirement accounts, or something else? But the core of the plan is clearly an enormous cut in taxes on corporate profits, which the nonpartisan Tax Policy Center estimates at $2 trillion over the next decade.
Now, the administration claims that all of this tax cut will be passed on to workers in the form of higher wages. In fact, it claims that the wage gains from the tax cut will be several times as large as the revenue loss.
Few independent analysts believe this. In fact, the administration itself doesn’t believe it. Recently Steven Mnuchin, the Treasury secretary, warned that stocks will crash if Congress doesn’t pass tax cuts. But why would stocks crash if all the benefits go to wages rather than profits?
For what it’s worth, the argument goes like this: Cutting corporate taxes would bring foreign capital into the United States, which would raise investment, which would increase productivity, and this productivity would then get reflected in higher wages. If this sounds like a convoluted and uncertain story, with many weak links in the supposed chain of events that ends up helping workers so much, that’s because it is...
...But one thing is true: These days there’s a lot of cross-border investment. In particular, as Steven M. Rosenthal of the Tax Policy Center notes — in a paper I found revelatory — around 35 percent of U.S. equities are now owned by foreigners, triple the level during the Reagan years.
What this means is that around 35 percent of a tax cut from an administration that proudly uses the slogan “America first” — $700 billion over the next decade — wouldn’t even go to Americans. Instead, it would be a windfall to wealthy foreigners, who would probably gain a lot more from the tax cut than U.S. workers. Oh, and it makes all that talk about allies not paying their “fair share” sound kind of silly, doesn’t it?
And meanwhile, the result would be a huge hole in the budget, which Republicans would try to close at the expense of the poor and middle class. The budget resolution the House and Senate passed over the last week called for cuts of $1 trillion in Medicaid and almost half a trillion in Medicare. The resolution doesn’t have the force of law, but it’s a pretty clear indication of what’s next if the big tax cuts pass.
Now, it may sound extreme to say that Trump and his allies want to take away health care from millions largely so that they can give wealthy foreigners a $700 billion gift. But however it may sound, it’s also the literal truth.
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