Paul Krugman has been explaining (very slowly and clearly) that if the US attracts foreign investment by cutting taxes on profits, then it will have to pay the foreign investors. The Tax Foundation appears not to have noticed that loans are not gifts.

This is the ultra-static effect of the cut in which its effects on behavior aren’t considered. Krugman went on to note that if there is a huge inflow of foreign cash (as promised by supporters of the bill) then there will be a huge increase in US payments to the foreigners. He calls this Leprechaun economics, because it is a very important reason that Irish GDP is much greater than their gross national income. He wrote

GDP is actually the wrong measure. If you’re going to be pulling in foreign capital, you’re going to be paying more investment income to foreigners; so gross national income – income accruing to domestic residents – is going to go up by less. And surely that’s the measure we care about.

and

There are really two bottom lines here. One is that the true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you’ve been hearing. The other is that if you’re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income.

Krugman raises a question

In fact, when you bear in mind the reduced taxes collected on foreign investors who are already here, GNI could actually go down, not up.

It is interesting. I think that somewhere he explains that the answer depends on another debated issue — the true incidence of taxes on profits. Enthusiasts for the tax cuts assert that, in the long run, all of the benefits will go to workers. People who look at data, estimate that about one quarter of the benefits of a reduction of taxes on profits go to workers

(before going on, there are no free lunches — the benefits are at the expense of the Treasury so other taxes will have to be raised or programs will be cut.)

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