The Schlock Of The New October 8, 2017 12:41 pm October 8, 2017 12:41 pm
I’m still thinking about Kevin Hassett’s appearance at the Tax Policy Center .. https://www.taxpolicycenter.org/taxvox/will-corporate-rate-cut-really-increase-us-jobs-and-wages , where he repaid his hosts’ graciousness by gratuitously impugning their integrity. But insults aside, he offered a new analysis of corporate tax incidence – an approach that is novel, innovative, and completely boneheaded. Oh, and it just happens to say what his political masters want to hear.
As Setser notes, Puerto Rico used to be a major tax haven for manufacturing corporations. Much of this tax advantage has now ended, but its legacy is still visible in trade statistics. Specifically, PR runs, on paper, a huge trade surplus in pharmaceuticals – $30 billion a year, almost half the island’s GNP. Yes, “N” not “D” – very important in this case, as in Ireland .. https://krugman.blogs.nytimes.com/2011/12/06/irish-pfizer-smiling/ .
But the pharma surplus is basically a phantom, driven by transfer pricing: pharma subsidiaries in Ireland charge themselves low prices on inputs they buy from their overseas subsidiaries, package them, then charge themselves high prices on the medicine they sell to, yes, their overseas subsidiaries. The result is that measured profits pop up in Puerto Rico – profits that are then paid out in investment income to non-PR residents. So this trade surplus does nothing for PR jobs or income.
What does this have to do with Hassett? Well, he told TPC – while insulting the institution and impugning its integrity – that transfer pricing driven by high nominal US corporate taxes is responsible for half the U.S. trade deficit, and that cutting these taxes would therefore be a big job creator. Never mind whether his estimate is right: even if it were, as Gleckman says, changing the transfer pricing would affect the accounting, but nothing real. It would be exactly like Puerto Rico’s pharma surplus: a phantom improvement, statistically impressive to the uninformed but signifying nothing. https://krugman.blogs.nytimes.com/2017/10/11/puerto-rico-trump-and-taxes/?_r=0
Kevin Hassett - https://en.wikipedia.org/wiki/Kevin_Hassett Dow 36,000 [...] Nobel laureate Paul Krugman argued on his faculty website that the book contained basic arithmetic errors and was "a very silly book" but regarded Hassett's role as co-author as a "youthful indiscretion."[10] Statistician and blogger Nate Silver described the book as "charlatanic" and suggested on empirical grounds that the authors had failed to notice that at the time of writing stock prices were "as overvalued as at literally any time in American history".[11] ,, https://en.wikipedia.org/wiki/Kevin_Hassett#Dow_36,000
See also:
Lawrence Summers: One last time on who benefits from corporate tax cuts By Lawrence H. Summers I recently asserted that Kevin Hassett deserved a failing grade for his “analysis” projecting that the Trump administration proposal to reduce the corporate tax rate from 35 to 20 percent would raise the wages of an average American family between $4,000 to $9,000. I chose harsh language because Hassett had, for what seemed like political reasons, impugned the integrity of people like Len Burman and Gene Steuerle who have devoted their lives to honest rigorous evaluation of tax measures by calling their work “scientifically indefensible” and “fiction.” Since there have been a variety of comments on the economics of corporate tax reduction, some further discussion seems warranted. The analysis from Hassett, chief of the White House Council of Economic Advisers (CEA), relies heavily on correlations between corporate tax rates and wages in other countries to argue that a cut in the corporate tax rate would boost returns to labor very substantially. Perhaps unintentionally, the CEA ignores our own historical experience in their analysis. As Frank Lysy noted, the corporate tax cuts of the late 1980s did not result in increased real wages. Actually, real wages fell. The same is true in the United Kingdom, as highlighted by Kimberly Clausing and Edward Kleinbard. These examples feel far more relevant to the corporate tax issue analysis than comparisons to small economies and tax havens like Ireland and Switzerland upon which the CEA relies. There has been a lot of back and forth, but notably no one has defended the $4,000 claim as a “very conservatively estimated lower bound,” let alone endorsed the plausibility of the $9,000 claim. In fact, the Wall Street Journal op-ed page published two very optimistic versions of what the wage increase could be, which were below CEA’s lower bound. [...] https://www.washingtonpost.com/news/wonk/wp/2017/10/22/lawrence-summers-one-last-time-on-who-benefits-from-corporate-tax-cuts/ further to: Hassett’s flawed analysis of Trump tax plan http://larrysummers.com/2017/10/17/doubt-any-republican-economists-will-associate-with-hassetts-analysis/ .. from "stashed October 22, 2017:" in post headed, Sunday Morning Futures w/ Maria Bartiromo 10/22/17 | Exclusive Interview w/ President Trump [F6, note, that video has gone dead] https://investorshub.advfn.com/boards/read_msg.aspx?message_id=136045362
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