FacebookTwitterGoogle+RedditEmail

Lessons in Economics For the NYT’s Bret Stephens: Apple and Donald Trump’s Big Tax Cut

Photo by Cathy Baird | CC BY 2.0

We all know about the skills shortage. Many employers can’t find workers with the necessary skills. For example, the NYT can’t find columnists who understand economics, so they had to hire Bret Stephens instead.

Mr. Stephens is angry that many people won’t join him in celebrating the decision by Apple and other big companies to repatriate foreign earnings back to the United States. He tells readers in his column, “Clueless Versus Trump”:

“Apple’s announcement on Wednesday that it will repatriate most of the estimated $274 billion that it holds in offshore earnings is great news for the United States. Uncle Sam will get a one-time $38 billion tax payment. The company promises to add 20,000 jobs to its U.S. work force, a 24 percent increase, and build a new campus. Another $5 billion will go toward a fund for advanced manufacturing in America.

“C’mon. What’s with the long face?”

There is some real world confusion here, most of it on the tax side. The basic point here is that Stephens doesn’t seem to have a clue why the government taxes in the first place. He wants us to celebrate the fact that Apple is paying $38 billion to the Treasury. Wow, are we all rich now?

How would the world be different if Apple still held its money overseas and we had the Fed credit the government with another $38 billion to count against its debt? If Mr. Stephens can see the difference, perhaps he can use another column to tell us, but the reality is the world would be very little different in that scenario.

 

The reason the government taxes is to reduce demand in the economy. The purpose is to prevent the economy from overheating and experiencing inflation. When the economy is near full employment we face the standard story where we have to tax to finance spending. In other words, if we want additional spending we have to pull demand out of the economy to open the space. However, when we are below full employment, the government is not constrained by its tax revenue.

With this basic fact in our back pockets, let’s think more about Apple’s huge overseas stash. While Apple was not cash constrained in any meaningful way, the opportunity to bring this money back to the U.S. for accounting purposes (in many cases the money is already being held in the U.S., its ownership is just attributed to a foreign subsidiary) is likely to lead to a round of share buybacks and/or special dividends. This is likely to lead to more consumption by Apple shareholders, with the bulk of this by people who were relatively rich already.

If we get more consumption by rich shareholders, it means increased demand in the economy. That leaves less room for government spending before we start seeing inflation. In other words, if we were concerned that we needed to tax money out of the economy to reduce inflationary pressures, we are likely to see more need for taxation as a result of Apple and other companies repatriating their profits, than if they simply kept the money overseas. That is in spite of the one-time dividend in tax revenue we get in the process.

The rules on taxation of foreign profits were actually doing what we wanted. They were reducing consumption to some extent, even though we were not actually collecting tax revenue.

Okay let’s look at the rest of the story:

“The company promises to add 20,000 jobs to its U.S. work force, a 24 percent increase, and build a new campus. Another $5 billion will go toward a fund for advanced manufacturing in America”

Well, these are all nice promises. What we (including Mr. Stephens) don’t know is how much of this refers to things that Apple would have done otherwise. It may be news to Mr. Stephens, but companies sometimes misrepresent things for public relations purposes. Apple has a really strong incentive to claim that things that it might have done anyhow, like hiring workers and new investment, were the result of the tax cut. This is a way to make people feel better about giving the bulk of a $1.5 trillion tax cut to the richest people in the country.

This is the reason that so many companies have felt the need to make big public announcements about their hiring and investment plans as well as bonuses and pay increases. Companies hire workers, make new investments, and give pay raises all the time. They usually don’t go to such great effort to put on a public display. This is obviously part of a public relations campaign. A more competent columnist would understand this.

There is actually a good way to see whether the Trump tax cut is having the promised effect on investment. Every month the Census Bureau issues its report on durable goods order for the prior month. The December data will be out next week. The key figure is orders for non-defense capital goods (excluding aircraft). This measures new investment in equipment, the largest component of investment spending.

If the tax cut is leading to the promised surge in investment, it should be at least partially visible in the December data. (Companies knew this tax cut was coming.) It definitely should be visible in the January data that will be reported next month.

Serious people will look at real data to determine the impact of the tax cut. Folks like Bret Stephens rely on public relations material.

This column originally appeared on CERP.

 

More articles by:

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

April 25, 2018
Stanley L. Cohen
Selective Outrage
Dan Kovalik
The Empire Turns Its Sights on Nicaragua – Again!
Joseph Essertier
The Abductees of Japan and Korea
Ramzy Baroud
The Ghost of Herut: Einstein on Israel, 70 Years Ago
W. T. Whitney
Imprisoned FARC Leader Faces Extradition: Still No Peace in Colombia
Manuel E. Yepe
Washington’s Attack on Syria Was a Mockery of the World
John White
My Silent Pain for Toronto and the World
Mel Gurtov
Will Abe Shinzo “Make Japan Great Again”?
Dean Baker
Bad Projections: the Federal Reserve, the IMF and Unemployment
David Schultz
Why Donald Trump Should Not be Allowed to Pardon Michael Cohen, His Friends, or Family Members
Mel Gurtov
Will Abe Shinzo “Make Japan Great Again”?
Binoy Kampmark
Enoch Powell: Blood Speeches and Anniversaries
Frank Scott
Weapons and Walls
April 24, 2018
Carl Boggs
Russia and the War Party
William A. Cohn
Carnage Unleashed: the Pentagon and the AUMF
Nathan Kalman-Lamb
The Racist Culture of Canadian Hockey
María Julia Bertomeu
On Angers, Disgusts and Nauseas
Nick Pemberton
How To Buy A Seat In Congress 101
Ron Jacobs
Resisting the Military-Now More Than Ever
Paul Bentley
A Velvet Revolution Turns Bloody? Ten Dead in Toronto
Sonali Kolhatkar
The Left, Syria and Fake News
Manuel E. Yepe
The Confirmation of Democracy in Cuba
Peter Montgomery
Christian Nationalism: Good for Politicians, Bad for America and the World
Ted Rall
Bad Drones
Jill Richardson
The Latest Attack on Food Stamps
Andrew Stewart
What Kind of Unionism is This?
Ellen Brown
Fox in the Hen House: Why Interest Rates Are Rising
April 23, 2018
Patrick Cockburn
In Middle East Wars It Pays to be Skeptical
Thomas Knapp
Just When You Thought “Russiagate” Couldn’t Get Any Sillier …
Gregory Barrett
The Moral Mask
Robert Hunziker
Chemical Madness!
David Swanson
Senator Tim Kaine’s Brief Run-In With the Law
Dave Lindorff
Starbucks Has a Racism Problem
Uri Avnery
The Great Day
Nyla Ali Khan
Girls Reduced to Being Repositories of Communal and Religious Identities in Kashmir
Ted Rall
Stop Letting Trump Distract You From Your Wants and Needs
Steve Klinger
The Cautionary Tale of Donald J. Trump
Kevin Zeese - Margaret Flowers
Conflict Over the Future of the Planet
Cesar Chelala
Gideon Levy: A Voice of Sanity from Israel
Weekend Edition
April 20, 2018
Friday - Sunday
Paul Street
Ruling Class Operatives Say the Darndest Things: On Devils Known and Not
Conn Hallinan
The Great Game Comes to Syria
Jeffrey St. Clair
Roaming Charges: Mother of War
Andrew Levine
“How Come?” Questions
Doug Noble
A Tale of Two Atrocities: Douma and Gaza
Kenneth Surin
The Blight of Ukania
FacebookTwitterGoogle+RedditEmail