The new corporate tax cuts are unlikely to stimulate the level of job creation and wage growth that the Trump administration has promised, a trio of prominent economists has concluded, because high tax rates were not pushing much investment out of the United States in the first place.
Instead, the researchers conclude, multinational corporations based in the United States and other advanced economies have sheltered nearly 40 percent of their profits in tax havens like Bermuda, depriving their domestic governments of tax revenues and enriching wealthy shareholders. That number suggests a jarringly large amount of what appears, to policymakers, to be investment pushed abroad by high tax rates is instead an accounting trick — so-called paper profits — which tax cuts will not reverse.
“This idea that if you cut taxes, you’ll attract a lot of physical capital, a lot of investment to the United States, I don’t think is supported by the evidence,” said Gabriel Zucman, an economist at the University of California, Berkeley, and one of the paper’s authors. “Paper profits — that doesn’t boost wages for workers. What boosts wages is actual factories.”
The research by Mr. Zucman and Thomas Torslov and Ludvig Wier of the University of Copenhagen does not imply that corporate tax cuts will not help companies or lead to at least some new investment. But it challenges the magnitude of the increase that President Trump and congressional Republicans promised would result from cutting the corporate tax rate to 21 percent from 35 percent as part of the $1.5 trillion tax overhaul.
