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Hot Topic (More than 10 Replies) TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY (Read 300 times)
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TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Apr 12th, 2018 at 7:40pm
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Great job, Trump/Ryan/Mitchell/et. al....


TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAYS

President Donald Trump touted the economic growth triggered by his tax cuts in a speech Thursday afternoon, pointing out the projected growth of gross domestic product (GDP) over the next 10 years had increased because of the plan.

But 80 percent of the economic growth generated by the Republican tax cuts will eventually go abroad and benefit foreigners, according to a new report by the nonpartisan Congressional Budget Office.

The report found significant differences between projected GDP, which measures the level of production in the U.S., and gross national product, which measures the income earned by all Americans. If the economic impact from GDP is higher than GNP,  the difference between the two is income generated in the United States but going to foreigners. According to the CBO, on average 34 percent of income from the economic activity driven by the tax cuts is flowing out of the country, and in 2028, when the full effects of the tax cuts are in place, that number will increase to 80 percent.

“We heard statement after statement about how this tax plan would be great for American workers but the analysis is clear,” Senator Chris Van Hollen told Newsweek. “When this thing kicks in, 80 cents of every dollar [gained from the tax plan] will go to foreigners and not American workers. That’s a stunning number.”




  

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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #1 - Apr 12th, 2018 at 8:20pm
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Why didn't Newsweek link to the actual CBO analysis?

It is hard to verify this 80% claim without that.  The headline numbers don't show much of the picture.

Major questions would be:

1) Is the impact on GNP lower because the CBO expects the world economy to grow more slowly than the US, thus causing American firms to earn less money abroad?  Because if that is the case, that is hardly "foreigners  getting economic gains".

2) How much of the growth in GDP is from foreign investment?  And beyond the xenophobic?  Who has a problem with foreign investment?  If a foreign firm invests in a plant and boosts GDP by $100 Billion but earns $80 Billion doing it, and thus growing GNP by $20 Billion, what sense does it make to complain about the $20 Billion gain?

3) What are the assumptions and methodologies for the calculations?  Are they identical, or are they handled completely separately.  One extremely minor assumption in one model that is not the same in another can lead to drastically different outputs.

Without the answers to these questions, it is hard to find much value in this comparison.
  
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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #2 - Apr 12th, 2018 at 8:22pm
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Whereve it goes, that is irrelevant. The tax cut was a good thing because it's the right thing to do. I know my paycheck is bigger.
  


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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #3 - Apr 12th, 2018 at 10:20pm
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So Trump's right and our country is being taken over by foreigners?  They really do own everything?

That's what I heard.  What do you suppose Trump's supporters heard?

The Democrats better get on this and trumpet it far and wide. 

Queshank
  

BowHunter wrote on Nov 30th, 2017 at 10:24am:
I am not aware of any article
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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #4 - Apr 12th, 2018 at 11:03pm
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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #5 - Apr 13th, 2018 at 12:06am
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Lovefingers wrote on Apr 12th, 2018 at 11:03pm:


Thanks for this.  It answers my questions, at least in part.  And to the detriment of the shocking headline of the OP.

Here is an extremely relevant passage, found on pp. 127 - 128:

Quote:
Effects on Gross National Product.
The 2017 tax act is expected to affect GDP and GNP differently. It raises the projected level of real GDP by an annual average of 0.7 percent over the 11-year period, an increase of about $710 per person (in 2018 dollars). Real GNP, by contrast, increases by 0.4 percent, on average, or about $470 per person. The act is expected to increase GNP less than it increases GDP because it shrinks U.S. net international income (see Table B-2 on page 115).

There are two reasons for that decline in net income flows to the United States. First, the increase in foreign investment in the United States that is associated with greater private investment and increased government borrowing generates a fall in net international lending,
which is national saving minus domestic investment. In CBO’s projections, the act decreases net international lending over the next 11 years by an average of 0.4 percent of GDP (see Figure B-5). The additional income generated by the foreign investment in the United States
accrues to foreign investors.

The second reason is that the act alters the rates of return earned on international assets. As the after-tax profitability of U.S. investments rises because of the tax act, foreign investors earn a higher return on their U.S. assets. In addition, the reported rate of return that U.S.
investments earn abroad will decline after 2023 as the act discourages U.S. companies from shifting their taxable income from the United States to affiliates in foreign countries. By altering the relative rates of return on international assets through those changes, the act reduces net
international income and shrinks the difference between GDP and GNP.


This is very telling.  First (actually it is the last key point in the quoted text), GNP has been running higher than GDP.  That is because GNP is calculated by adding net foreign income earned by Americans to the GDP.  Meaning, you take GDP, add income that Americans earn outside America and subtract income non-Americans earn in America. 

See this link: https://fred.stlouisfed.org/release/tables?rid=53&eid=15274&snid=15278

You can create this graph:

https://fred.stlouisfed.org/graph/fredgraph.png?g=jroO

For the last 10 years GNP has been higher than GDP.  Because Americans earn more money abroad than non-Americans earn in America.  This tax plan is expected to narrow that gap.

The rest of the quoted text explains how that narrowing will occur.

One of those ways is foreign investment coming into the united states, which will raise foreign income.  As I mentioned, foreign investment isn't a bad thing.  Even if those foreigners are earning income.

The other way is that it reduces tax related income shifting by American companies.  Companies do this by housing intellectual property in other countries and counting their earnings over there, choosing where they incur debt based on where the taxes impact will be most helpful (ie, taking out debt -- with the accompanying interest expense -- to lower taxable income in the US) as well as transfer pricing when products are transferred within the organization.  In simple terms, Companies that used various tricks to shift profits from the US to places with lower tax rates, will do less of that, thus shifting those profits back to the US.  This shift has no effect on GDP but lowers GNP, and yet has nothing to do with scary foreigners taking our jerbs.

Senator Van Hollen might want to dig a little deeper into CBO's reporting.

A final interesting point is that CBO points out that one of the reasons for the increase in foreign investment is that private investment/borrowing will be growing while, at the same time, government borrowing is growing.  This draws international investment as American capital is less available due this growth in demand.  So one way to keep foreigners from gaining from this tax law (if that is one's goal for some reason) would be to decrease federal spending and thus federal borrowing.
  
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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #6 - Apr 13th, 2018 at 6:24pm
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Bump for Ulysses.
  
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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #7 - Apr 14th, 2018 at 2:29am
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More from the article linked in the OP:

Nearly one-third of the U.S. stock market is owned by foreign investors, which means they’re benefiting from the $238 billion increase in stock buyback authorizations since the tax law passed. An analysis of Fortune 500 companies found that corporations have spent 37 times more on stock buybacks than on American workers’ bonuses and wages. “Republicans had fair warning that a huge chunk of this economic boost would flow to foreigners,” said Van Hollen. “The bottom line is that foreigners own a large chunk of U.S. corporations and will get a big windfall.”

At the same time, U.S. deficits are projected to balloon because of the decrease in revenue being collected under the tax cuts. The CBO projects that federal spending will exceed revenues by $804 billion in fiscal year 2018, up from $665 billion in 2017. The national debt is now on track to be 100 percent of GDP by 2028. That means the U.S. will have to borrow money to make up for its shortfalls, and much of that money will come from abroad. The small gains to GDP will be offset by increased interest payments abroad.

“That’s the effect of the tax law, it provides some boost to GDP but that boost is financed by a lot of borrowing,” said Chad Stone, chief economist at the left-leaning Center on Budget and Policy Priorities. “Each year’s borrowing produces more income for foreigners and by the time you get to 2028 there’s a fair amount of income for foreigners being generated.”

Republicans have “clearly abandoned any claims of fiscal responsibility,” said Van Hollen. “You’re borrowing close to $2 trillion from our kids and grandkids and then you’re giving it to corporations and others and at the end of the day 80 percent of the benefits of additional economic activity are going to foreigners.”
  

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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #8 - Apr 14th, 2018 at 2:39am
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Grin Grin Grin Grin

Useless copy and pasted with Stu's highlighter.
  

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Re: TRUMP TAX PLAN: 80 PERCENT OF ECONOMIC GAINS WILL END UP GOING TO FOREIGNERS, CBO SAY
Reply #9 - Apr 14th, 2018 at 2:43am
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Again, this is irrelevant. The tax cut was simply the right thing to do. Whatever a company decides to to with the extra money is up to them. It’s *THEIR* money to begin with. The more we - individuals and businesses - can keep our own earnings, the better.
  


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