American workers hoping a for a big income boost from the tax cuts may be in for a major disappointment. According to the Tax Policy Center’s Benjamin Page and William Gale, a closer look at the Congressional Budget Office’s analysis of the Tax Cut and Jobs Act suggests that foreign investors will take home most of the benefits of the additional economic growth spurred by the new tax rules.
The CBO estimates that U.S. gross domestic product will be 0.5 percent larger in 2028 as a result of the tax cuts. But the GDP statistic doesn’t differentiate between economic activity that benefits American citizens and economic activity that benefits foreign investors.
To get a better idea of how much incomes will rise specifically in the U.S., Page and Gale argue that we should look at gross national product — the economic output produced by American workers and American capital. The CBO says the tax cuts will have a much smaller effect on GNP, which will be just 0.1 percent larger in 2028. That’s because most of the investment spurred by the tax overhaul will come from foreign companies building factories in the U.S. and foreign investors buying American stocks and bonds. As a result, the CBO data indicates, most of the earnings from additional economic activity will end up in the pockets of foreign investors, not American workers.
And it gets worse: A third measure of economic output — net national output, which is GNP minus depreciation — wipes out even the meager 0.1 percent gain expected in 2028. In the end, the authors write, “long-run incomes for Americans as measured by NNP will be more or less unchanged by the TCJA.”