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.”
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 nonpartisan 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.”