Trump’s Tax Plan Is a Huge Giveaway to Foreign Stockowners

A new study shows how tax cuts for foreign shareholders threaten Social Security.

Ron Sachs/ZUMA

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Thus far, the debate over Republicans’ proposed tax cut has focused on how much the wealthiest Americans would get compared with everybody else. But there’s a new group of winners in the mix: foreigners who own shares of US companies.

A new analysis from Steven Rosenthal, a senior fellow at the nonpartisan Tax Policy Center (TPC), has found that foreign shareholders will net $70 billion per year in the short run as a consequence of Republicans’ proposed corporate tax cut. That is three times the amount the TPC predicts middle-income Americans would save per year under President Donald Trump’s tax plan.

The math behind Rosenthal’s claim is easy to follow. The TPC has already predicted that Republicans’ plan to cut the corporate tax rate from 35 percent to 20 percent will result in a $200 billion decrease in yearly tax revenue. When companies’ after-tax profits rise as a result of the cuts, most economists expect the value will be passed on to the shareholders. Foreign residents own about 35 percent of US stock, according to Rosenthal’s analysis, and could see the value of their assets increase by $70 billion.

Last week, Trump’s Council of Economic Advisers (CEA) released a widely criticized paper claiming their corporate tax cut would boost wages by up to 11 percent. Since then, there’s been a back-and-forth about the long-term effects of corporate tax cuts. But Rosenthal says the focus should be on the short term, which economists put at anywhere between a few years to more than a decade. 

Virtually all economists agree that corporate tax cuts initially go to a company’s owners. For publicly owned companies, that results in higher dividends and stock buybacks that raise share prices. In “the very short run, shareholders would be the main beneficiaries of a corporate tax cut,” says Alan Auerbach, a University of California-Berkeley economics professor who has collaborated with Kevin Hassett, the chair of Trump’s CEA, on papers for the conservative American Enterprise Institute. 

“Americans are left with a pretty lousy deal,” Rosenthal tells Mother Jones. “We’re shoveling lots of money to foreigners and racking up a huge national debt,” he adds, noting that larger deficits threaten entitlement programs. “We can’t expect the foreigners to bail out our Social Security in a couple of decades. That’s not going to happen.” By enacting a tax plan that benefits people who already own stock, Rosenthal argues Republicans are providing a “windfall for existing investment, not future investment.”

Scott Greenberg, a senior analyst at the conservative Tax Foundation, told Bloomberg that Rosenthal’s basic claims are “essentially correct.” Kimberly Clausing, a more left-leaning professor and tax expert at Reed College, says it is “absolutely” true that stock owners would be the immediate beneficiaries of a corporate tax cut. Paul Krugman, the New York Times columnist and Nobel Prize-winning economist, writes on his blog that “the bulk of that tax cut will almost surely accrue to stockholders.” Looking at the tax cut’s 10-year impact, Krugman labels it a “$700 billion foreign aid program.” 

Over the long term, economists disagree about the extent to which benefits will eventually go to company’s workers. A 2015 Treasury Department study found that only 18 percent of employers’ savings from corporate tax cuts were eventually passed onto employees through higher wages. A Congressional Budget Office estimate puts the number slightly higher, at 25 percent.

Clausing says there is not much evidence of a long-run benefit for workers. Her research suggests that any wage increases would be modest and take at least six years, and possibly more than a decade, to kick in. Auerbach is more optimistic, saying the low unemployment rate means wages could start to rise more quickly, perhaps “within the next few years.” 

DJ Nordquist, chief of staff to Trump’s CEA, disputes Rosenthal’s analysis: “We don’t agree with the paper’s foundations or calculations because TPC makes many assumptions that are simply incorrect.” Nordquist added that the idea that only shareholders benefit from a rate reduction is “about 20 years out of date.” (Rosenthal’s analysis states that workers are likely to get some benefits over the long run.) 

“Overall the article is shockingly xenophobic,” Nordquist says, arguing that the TPC is greatly understating the importance of foreign investment in a global economy. 

Rosenthal says the White House’s response “fails to separate” the short term and the long term. “If the White House cannot count the winners in the short run, including the foreign winners,” he asks, “how can the White House tell us the tax deal is good for America?”

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate