November 08, 2017
Paul Krugman had an interesting blog post today on the impact of the Republican proposal to cut the corporate income tax. While he rejected the growth claims of the Trump administration, he noted the projections of the Penn-Wharton model that the tax cuts would increase GDP between 0.3 to 0.8 percent by 2027. He described this increase as “basically an invisible effect against background noise.”
This is worth comparing with the projected gains from the Trans-Pacific Partnership (TPP). The very pro-TPP Peterson Institute projected gains of 0.5 percent of GDP by 2032. The United States International Trade Commission projected an increase in GNI (Gross National Income) of 0.23 percent by 2032. (Neither of these analyses tried to incorporate the impact of the increased protectionism in the TPP in the form of longer and stronger patent and copyright protections.)
Anyhow, if we agree with Krugman that the projected 0.3–0.8 percent of GDP gain from the cut in the corporate income tax is “basically an invisible effect against background noise,” then we can’t think the smaller and more distant projected gains from the TPP are a big deal, unless we are dishonest. (For the record, Krugman is not a guilty party here since he opposed the TPP.)
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