Economists: Tax havens blunt impact

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 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 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 Don-

ald 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.

Throughout the debate over the tax bill, Republicans cast the country’s corporate tax rate as uncompetitive when compared with nations such as Ireland and Canada, and said the rate was pushing American multinationals to park their profits in other countries where their tax bills would be lower.

The new research concludes that assumption is wrong. “Machines don’t move to low-tax places,” the economists write, “paper profits do.”

Administration officials dismissed the researchers’ results, saying the evidence is clear that reducing corporate tax rates increases investment and wages.

The chairman of Trump’s Council of Economic Advisers, Kevin A. Hassett, has long argued that workers’ wages are bolstered in countries where companies locate their profits.

Last year, the council publicly estimated that reducing America’s corporate rate would raise average household incomes in the United States by $4,000 to $9,000 a year in the medium run.