You Just Cannot Be an Honest Neoclassical Economist and Make the Trumpublican Tax “Reform” a Winner for U.S. National Income Growth…

…or, especially, after-tax real median growth. Or even 2%-ile income growth. Let alone well-being after cuts in public services.

You just can’t.

It doesn’t add up at any level. As a matter of arithmetic…

Just too much of existing capital income flows to foreigners. Too much of extra production generated by a capital inflow would be credited to foreigners. And domestic savings supply is relatively inelastic. Even if you put both hands on the scale and lean hard, it just doesn’t work, even without noting how much of payments to capital are monopoly rents and payments to other forms of capital that are not interest sensitive…

And Paul Krugman has been on fire this fall:

(Plus the salmon (on my machine) rectangle, minus the… what color is that? (on my machine) brownish-gold rectangle—that’s the long-run change in U.S. national income from a budget neutral tax “reform” like that Trumpublicans are proposing. The effects of a deficit-increasing one are… less favorable.)

Krugman this fall:

• (2017-10-05) Paul Krugman: The Transfer Problem and Tax Incidence: “Assuming I’ve done the algebra right, I get a rate of convergence of .059–that is, about 6 percent of the deviation from the long run eliminated each year. That’s pretty slow: it will take a dozen years to achieve even half the adjustment to the long run. What this says to me is that openness to world capital markets makes a lot less difference to tax incidence than people seem to think in the short run, and even in the medium run…”

• (2017-10-21) Paul Krugman: Some Misleading Geometry on Corporate Taxes: “What’s wrong with this picture?… Four reasons I can think of…. A lot of what we tax with the corporate profits tax is… monopoly profits and other kinds of rents…. Capital mobility is far from perfect…. The US isn’t a small open economy…. Finally… capital inflows… have to be created by a temporarily overvalued real exchange rate… meaning very big trade deficits, meaning a strongly overvalued dollar…”

• (2017-10-24) Paul Krugman: The Simple and Misleading Analytics of a Corporate Tax Cut: “The claim here is that the wage gains from a corporate tax cut exceed the revenue loss by a ratio that depends only on the initial tax rate, not at all on the degree to which capital can be substituted for labor, which in turn should (in this model) determine how much additional capital is drawn in by the tax cut. This feels wrong–and it is…”

• (2017-10-25) Paul Krugan: Trump’s $700 Billion Foreign Aid Program: “A simple point, but one everyone—myself included—somehow missed: the Trump tax plan is a huge giveaway to foreigners. Among other things, this means that the tax plan almost certainly reduces U.S. welfare even if you ignore distributional issues…”

• (2017-10-29) Pul Krugman: Tax Cut Fraudulence: The Usual Suspects: “A revival of some more traditional, Bush-era fraudulence…. In particular: First, the claim that the rich pay practically all the taxes, so that of course they have to get the bulk of the tax cut. Second, claims of vast growth, because Reagan…”

• (2017-11-01) Paul Krugman: The Gravelle Geardown: “Why does Gravelle-type analysis ‘gear down’ the wage effects of lower corporate taxes so much?…. Four reasons, three of which are conceptually easy…. First, a lot of the profits we tax are rents…. Second, corporate capital is only part of the U.S. capital stock; half of fixed assets are residential, and a lot of the rest isn’t corporate…. Third, America isn’t small…. Finally, and this is the one that I find takes some work, we’re very far from having perfectly integrated markets for goods and services…. So how great an idea is cutting corporate taxes? About as great as Dow 36,000…”

• (2017-11-08) Paul Krugman: Leprechaun Economics and Neo-Lafferism: “Not incidentally, Kevin Hassett appears to be confused about the economics here, imagining that a paper reduction in the US trade deficit due to changes in transfer pricing would bring in real jobs. It wouldn’t. There are really two bottom lines…. The true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you’ve been hearing. The other is that if you’re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income…”

• (2017-11-09) Paul Krugman: Leprechaun Economics, With Numbers: “The TF model… I don’t believe for a minute…. Tax Foundation asserts that capital inflows will be enough to raise GDP more than 3%, which is wildly implausible. But let’s go with it…. The true gain to the US is 1.05%, not 3.45%. That’s a big difference, and not in a good way…. Even if you believe the whole ‘we’re a small open economy so capital will come flooding in’ argument, it buys you a lot less economic optimism than its proponents imagine…”

• (2017-11-11) Paul Krugman: The Tax Foundation Has Some Explaining To Do: “I’m hearing from various sources that the Tax Foundation’s assessment of the Senate plan… is actually having an impact on debate in Washington. So we need to talk about TF’s model…. During… large-scale capital inflow, you must have correspondingly large trade deficits…. Second… foreigners aren’t investing in America for their health…. Most of any gain in GDP accrues to foreigners, not U.S. national income. So how does the TF model deal with these issues? They have never provided full documentation (which is in itself a bad sign), but the answer appears to be—it doesn’t…”

• (2017-11-14) Paul Krugman: Tax Cuts And The Trade Deficit: “If you believe the TF analysis, you also have to believe that the Senate bill would lead to enormous trade deficits—and massive loss of manufacturing jobs. What would adding $600 billion per year to the trade deficit do?… The U.S. manufacturing sector would be around 20% smaller than it would have been otherwise. How would this happen? Huge capital inflows would drive up the dollar, making U.S. manufacturing much less competitive…”