A new report by the Congressional Budget Office indicates that 80 percent of the economic growth generated by the Republican tax cuts, which President Donald Trump touted in a speech on Thursday, will eventually go abroad and benefit foreigners.
The report found significant differences between projected GDP and gross national product. According to Newsweek, if the economic impact from GDP is higher than GNP, the difference between the two is income generated in the United States but going to foreigners.
The CBO says that currently about 34 percent of income from the economic activity driven by the tax cuts is flowing out of the country, while it projects that by 2028 this number will reach an astounding 80 percent.
“We heard statement after statement about how this tax plan would be great for American workers but the analysis is clear,” Senator Chris Van Hollen said. “When this thing kicks in, 80 cents of every dollar [gained from the tax plan] will go to foreigners and not American workers. That’s a stunning number.”
The reason is that foreign investors own almost one-third of the U.S. stock market, meaning that they are benefiting from the $238 billion increase in stock buyback authorizations since the tax law passed.
“Republicans had fair warning that a huge chunk of this economic boost would flow to foreigners,” said Van Hollen. “The bottom line is that foreigners own a large chunk of U.S. corporations and will get a big windfall.”
At the same time, U.S. deficits are expected to balloon due to the decrease in revenue being collected under the tax cuts. The CBO projects that federal spending will exceed revenues by $804 billion in fiscal year 2018, compared to $665 billion in 2017. Also, by 2028, the national debt will likely be 100 percent of GDP. Consequently, the U.S. will have to borrow money to make up for its shortfalls, and much of that money will come from abroad.
“That’s the effect of the tax law, it provides some boost to GDP but that boost is financed by a lot of borrowing,” said Chad Stone, chief economist at the nonpartisan Center on Budget and Policy Priorities. “Each year’s borrowing produces more income for foreigners and by the time you get to 2028 there’s a fair amount of income for foreigners being generated.”