Thread by @Brad_Setser

Lots going on today.

But wanted to provide a quick update on the impact of the Tax Cuts and Jobs Act on "income" flows and the accumualted stock of offshore U.S. profts.

Bottom line: impact has been somewhat more modest than predicted

1/x

as the chart above shows, U.S. firms drew on their accumulated stock of offshore profits to pay dividends back to their parents in the 2qs that followed the tax reform, but have subsequently returned to adding to their stock of assets offshore.

the draw on the accumulated stock of profits was $220b or so -- a far cry from the sums implied by talk of trillions in trapped profits abroad.

and if q4 is any guide, from now on roughly 2/3rds of income earned offshore will be returned as dividends and 1/3 "reinvested"

3/x

Don't get me wrong - that's a change.

The pace at which U.S. firms accumulate offshore assets likely has changed permanently. There will be less funds abroad (held by US firms) to lend back to the US. The "roundtripping" that inflated inflows into US debt will fall

4/x

What about the geographic distribution of U.S. profits abroad? Has the tax reform had any impact?

Sadly, the answer is no. U.S. firms are still reporting that they earn the bulk of their offshore profits in a small number of low tax jursidictions.

consider these two charts ...

the first shows profits in the main low tax jursidictions (folks seem to love the Netherlands post tax reform)

the second shows profits in the world's biggest economies

obviously, the New York Times version of these charts looks much better.

and nothing changed with the q4 data

nytimes.com/2019/02/06/opi…

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