Donald Trump often complains that the media does not recognize the merit of his achievements. And I can think of at least one case in which that is true. As far as I know, almost nobody is talking about the fact that under his mandate there has been a great – albeit hidden – increase in foreign aid, the money that the US gives to foreigners. In fact, Trump's hidden program, which is currently around $ 40 billion annually, is probably the largest donation to other nations since the Marshall Plan. Unfortunately, the aid does not go to poor countries or to US allies. Instead, it targets rich foreign investors.
But before we get to that, let's talk for a moment about a statement that Trump often makes about a very visible aspect of his economic strategy: the tariffs he has imposed on imports from China and other countries. Trump insists time and again that China pays these tariffs and represents billions in benefits for the United States. However, this statement is false. Normally, the tariffs are paid by the consumers of the importing country, not the exporters. And we can confirm that this is what is happening with Trump's tariffs: the prices of the products subject to those taxes have increased dramatically, more or less in line with the tariff increases, while the prices of the non-subject products to the new taxes have not gone up. So Trump's tariffs are not a tax for foreigners, regardless of what he thinks. On the other hand, its other policies have given certain foreigners a great fiscal respite.
Remember that Trump's only major legislative achievement so far is the 2017 Tax and Employment Reduction Act. The core of that bill was a sharp reduction in corporate taxation, which led to a drastic drop in tax collection. , of the order of 140,000 million dollars last year.
Who wins with this tax cut? Proponents of the bill said the benefits would come to workers in the form of higher wages and insisted on the importance of the flood of incentive announcements for companies in early 2018. But those incentives were not really very large and They did not continue. In fact, at this point it is clear that the wave of incentives, as it was raised, was mainly about evading taxes: by advancing the payments they were going to make anyway, companies could deduct the expense with the old tax rate , highest. Now that this option has expired, the incentives have returned to their normal level or have even declined a bit.
And what about the argument that tax cuts would lead to an increase in business investment that will pull wages? Well, it's not happening either; With regard to business investment, the tax cut has been a big fiasco. So who is benefiting from the tax cut? Basically, the shareholders, who have received higher dividends and have seen large capital gains since companies do not use this money fallen from the sky to invest, but to repurchase their own shares. And a good part of these shareholder profits has gone to foreigners.
After all, we live in an era of globalized finance, in which wealthy investors own assets in many countries. Americans own billions in foreign capital, both directly in the form of foreign shares and indirectly in the form of shares of US companies with foreign subsidiaries. Foreigners, in turn, have great interests in the US, again both through direct ownership of shares and through the operation of their corporate subsidiaries.
Unfortunately, this capital does not go to poor countries or allies. Instead, it targets rich foreign investors
Together, foreigners own 35% of the capital in companies subject to US taxation. And as a consequence, foreign investors have received 35% of the tax reduction benefits. As I said before, that is more than 40,000 million annually. To put this in perspective, the tariffs Trump has imposed on China have raised 20,000 million so far. Even if China paid those tariffs – which it is not doing – that would fall short of the gift Trump has given to foreign investors. Alternatively, we can compare Trump's gift to foreign investors with our real spending on foreign aid. In 2017, the US spent 51,000 million on “international affairs,” but a good part of that corresponds to the cost of operating embassies or military aid. Trump's tax relief for foreign investors is considerably greater than the total amount we spend on foreign aid itself. Now, the US economy is almost inconceivably huge and produces more than 20 billion dollars in products and services annually. In addition, the US is a country that investors rely on when paying off debts, so the tax cut, irresponsible as it is, is not causing any immediate fiscal stress.
So Trump's gift to foreign investors will not do us good or bad, although it is probably enough to ensure that the tax cut will be, above all, a clear drag on economic growth: even if the tax cut has Some positive effect on the total benefits generated in the US (which is doubtful), this will probably be more than offset by the increase in the percentage of benefits that foreigners perceive instead of US citizens. Even so, even in the US, 40,000 million over here, 40,000 million over there, and in the end we are talking about real money. Moreover, it seems appropriate to point out that although Trump boasts of taking money from foreigners, his real policies are doing exactly the opposite.
Paul Krugman is a Nobel Prize in Economics © The New York Times, 2019.
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