The Tax Bill and Measured GDP

Google is the latest multinational giant to end its “double Irish” tax loophole, according to Financial Times. The article reads:

“Google’s actions came ahead of the close of the so-called “double Irish” tax loophole, which has been used by US companies to channel international profits through Ireland and on to tax havens like Bermuda — putting them outside the US tax net.”

Scott Sumner wrote about this in his blog at Themoneyillusion.com, which I highly recommend. The tax bill, which I just posted about, sought to reign in the practice of keeping domestic and foreign profits in overseas tax shelters. This is a good thing for the US government, as it will receive the taxes on those funds repatriated. This is not likely to raise GDP however. In what appears to be a preemptive strike against those who would claim an economic victory by the Trump administration, Scott wrote the following:

“This action does not impact the actual GDP of the US, as even profits supposedly “held overseas” are in fact owned by US multinationals. It’s an accounting gimmick to avoid taxes, which has no implications for variables such as national income, productivity, exports, etc. But these tax shifting activities do impact measured levels of national income, productivity, exports, etc.”

This is a nuanced point which will undoubtedly get lost in the public discussion of the tax bill. I recommend reading the rest of the article which considers other points such as intellectual property profits overseas, and why they lead to GDP being underreported.