Caveat: Stealth Xenophilia

Hey, foreigners! Want some money?

I had this brainstorm as I was walking to work through the snow, listening to NPR about the newly passed tax bill in the US Congress. So here's a rare 2nd blog post for this day.

I have seen plenty of discussion of the way the new tax "reform" bill is essentially a wealth transfer from the poor and middle class to the wealthy. What seems less commonly commented upon is that it also will be a wealth transfer from US citizens to non-US citizens. This is remarkably dissonant with the Republican platform. I wonder what's going on.

Let's think about it. Who holds US equities? Who are the owners of stock in US companies? Some brief googling found numbers from 2015, that stated that foreign ownership of US equities was 21%. While this may be not exact, it hardly seems that far off, either.

The point would only be – that means 21% of the huge corporate tax break is benefitting wealthy non-Americans. Since the tax cuts are being financed by losses to government spending or by government debt, under best-case scenarios, or, by eventual higher taxes on US workers under darker scenarios, it becomes irrefutable that what the tax bill represents is not just a wealth transfer from the middle class (and poor) to the wealthy, but from Americans to foreigners.

Is that what they want? I can't imagine they're really so ignorant as to not realize that. Who are the international wealthy who own all these equities? Russian oligarchs, Saudi princes, China's party-member nouveau-riche.

Interesting, right?

Further, to the extent the tax bill is being financed by increased government debt, we need to also ask, who holds US government debt? One quick google search showed me that as much as half of US debt is held by foreigners. Now, to the extent that that debt is… debt, it's not really an asset transfer. But debt-holders are acquiring access to streams of future US revenue, in the form of interest payments on the debt (which come from taxes, right?), so again, this boils down to a wealth-transfer from US coffers offshore. Who are these US debt holders? #1: China. #2: Japan. The Cayman Islands is high on the list – which is just a proxy for people who are rich but don't want you to know about it. You get the picture.

They say this is going to help the US economy, right? How? Even if there's trickle-down (which is of course empirically questionable), it seems that a large chunk will be trickling into other countries' economies.

Indeed, to the extent that super-wealthy South Koreans (e.g. the Chaebol families, such as the owners of Samsung or Hyundai) hold US equities or debt (which I'm sure they do), I may benefit more from this tax plan as a resident of South Korea than I do as an American citizen.

And here's the snow I walked through.