Ep. 199 Krugman: Trump’s Tax Cuts Make the 1% –and Rich Foreigners– Richer

3 August 2019     |     Tom Woods     |     10

Krugman says that since Trump’s tax cuts amounted to nothing but a giveaway to wealthy shareholders, and since many of those are foreigners, the tax cuts amounted to a perverse foreign aid program.

Krugman Column

Trump’s Secret Foreign Aid Program” (July 25, 2019)

Contra Column

Bob’s senate testimony on CO2

Related Article

“Steel Tariffs and Wages,” by Paul Krugman

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  • davegrille

    Money that is received by government either from tax or borrowing,except to service debt,takes from employment and production.

  • NoMoreFed

    It is accurate to say that some costs are passed on by companies. One of the reasons that companies can’t just raise prices is because of competition. But if there is a hike in taxes for all companies in a particular industry, it raises costs for all of those companies. In that situation, they may be able to pass down some of the extra costs in the form of higher prices.

    • davegrille

      A situation in which a tax increase effects all or even most companies equally doesn’t happen.

  • Tuppenceworth

    Not really that important but there’s a little bit in here where it is said that if taxes could be totally passed on to consumers by companies, then oil companies, say, would have no problem with a carbon tax. But surely this is not true. As mentioned elsewhere in the episode, the sole point of a carbon tax is to reduce consumption of fossil fuels. This would surely reduce the revenue of oil companies even if they were passing on the total cost of the tax.

    • Danan

      That just means all costs can’t be passed on, though. If all costs could be passed on producers would not suffer, by definition. But there’s no such thing as totally inelastic demand, especially in a huge market like oil. Oil plays such a high share of the average consumption bundle (directly or as input in other goods) that the income effect of price increases alone will affect demand.

      • Tuppenceworth

        Right, I think we’re on the same page. I meant that when people assert that when you add a 5% tax to something it will just be “passed on to consumers” they have in mind that the price will just go up by 5% per product. This *is* totally possible but people would buy less of it at the new price so the overall revenue would be reduced. So it’s not the fact they can’t pass on the tax that companies are complaining about but that whatever they do *must* reduce their revenue somehow. Maybe I’m being pedantic and it’s just about how it’s framed.

  • Gary Tarbell

    I think Bob needs to be more robust in his explanation of the consequences of tariffs. Vague references to grey areas give too much fodder to the Trump bots that are ignorantly cheering the tariffs on as 4D chess.

    People already accuse libertarians and Austrians of cutting Trump too much slack.

  • martinbrock

    You aren’t denying Krugman’s premise that corporate tax cuts drove stock buybacks, benefiting shareholders (and corporate officers with stock options) including foreign shareholders, rather than capital investments increasing productivity or the variety of consumer goods. You’re only saying that Krugman is sick for calling these benefits “foreign aid” and “gifts”. O.K. But like Stockman and others, I’m more interested in the effect on stock buybacks vs. capital investment.

    I am interested in how much of Trump’s tariffs U.S. consumers pay (vs. U.S. importers, U.S. retailers, Chinese producers and others), but I’m not so interested in the rhetorical sparring between Trump (who says that “China” pays the tariff)) and Krugman (who says that “we” pay the tariff). If Bob has some analysis quantifying the effect for particular goods, like iPhones, I’m interested.

    • Bill

      The stock buybacks have a lot more to do with Fed fueled liquidity than tax cuts.

      As to who pays tariffs its almost certainly both sides, for now, but if Chinese producers are footing more of the bill in lost revenue now its almost certainly true that we’ll have higher prices or lower quality in the future as a result. Or more poisonous cat food or whatever.

      • martinbrock

        The corporate income tax cuts had the short-term effect of encouraging U.S. corporations with cash reserves earned outside of the country to repatriate the earnings, and rather than reinvest these earnings, many corporations used them for buybacks. So I read. The longer term effects are to be seen.

        The Fed has also encouraged corporations to trade equity for debt by borrowing to buy back stock. These buy backs, as opposed to dividend payouts, deliver short-term gains to corporate officers making the decisions, who cash in stock options when the share price rises, and leave the corporation more highly leveraged indefinitely.

        U.S. consumers pay the greater part of the tariff by far, and as Krugman demonstrates well enough, the evidence is empirical. We see the importers raising their prices commensurate with the tariff, and we don’t see corresponding price increases in domestically produced goods.

        In the longer run, U.S. producers could produce more competing goods, but these changes occur more slowly. Apple can’t move manufacture of the iPhone overnight and won’t move the manufacture to the U.S. (rather than Vietnam or some other country with less costly resources) based on tariffs imposed unilaterally by one man who could change his mind tomorrow. What goes up politically can come down politically as easily.

        Trump’s tariff war is a classic case of regime uncertainty, and I’m getting this story from Peter Schiff and Robert Higgs, not from Paul Krugman. When Krugman agrees with Schiff, we need to stop reflexively rationalizing rebuttals of Krugman. In this case, the enemy of our enemy is not our friend. Trump makes a show of sticking his finger in the eye of the establishment, but he’s still a big spending, liberal interventionist.