A new report says the Trump tax law will boost economic growth — just probably not where Trump wants it

pulse

April 20, 2018 3:44 PM

President Donald Trump said the tax law would boost Americans workers, but much of the benefit will go to foreign investors, according to a CBO report.

A new Congressional Budget Office report on the Republican tax law found that a significant amount of its benefits would go to foreign investors.
From 2018 to 2028, 43% of the economic benefit from the tax law on average will go to foreign investors, the report said.

President Donald Trump and the Republican Party sold their new tax law as a big win for American workers and businesses. But a new report says a significant amount of the law's benefits could end up helping people outside the US.

In response to an inquiry from Sen. Chris Van Hollen, a Democrat from Maryland, the nonpartisan Congressional Budget Office determined 43% the tax law's economic benefits on average would go to foreign investors from 2018 to 2028.

The CBO reached this conclusion by estimating the tax law's boost to gross-domestic-product growth, the preferred measure for US economic growth, and gross national product.

GDP measures all the goods and services produced in the geographic US, including from foreign investment, while GNP measures growth attributable to US citizens or corporations around the globe.

The CBO takes the difference of the two to determine how much of the economic boost goes toward foreign investors in the US.

It found foreign investors' share of the tax law's boost would be 48% this year but drop to 31% in 2019 as various parts of the law take effect. After that, the CBO found, the amount to foreign investors would remain between 33% and 39% until 2026, when the tax cuts for individuals are set to expire.

Since the tax law's corporate tax cut is permanent, many foreign investors in US stocks and businesses would continue to reap the benefits of the law from 2026 onward. But if the cuts to the individual rate are not renewed, the percentage of the benefit going to non-US citizens would drastically jump.

According to the CBO, 48% of tax law's benefits would go toward foreign investors in 2026, then 60% in 2027 and 71% in 2028.

But while foreign investors will capture a significant amount of the initial boost, American businesses could ultimately reap some of those benefits, too. Foreign investors could choose to spend the economic gain from the tax law on US goods down the road.

pulse