Yesterday the Tax Policy Center released its macroeconomic analysis of the House tax cut bill. TPC is not impressed: their model says that GDP would be only 0.3 percent higher than baseline in 2027, and that revenue effects of this growth would make only a tiny dent in the deficit.

But Brad DeLong reminds me of a point I and others have been making: focusing on GDP is itself misleading, because we’re a financially open economy with a lot of foreign ownership already, and a large part of the alleged benefit of corporate tax cuts is that they will supposedly draw in lots of foreign investment. As a result, we should expect a significant fraction of the benefits of corporate tax cuts to go to foreigners, not domestic residents; income of domestic residents should rise less than GDP.

So I’ve been trying a back-of-the-envelope estimate of the difference leprechaun economics (so named because Ireland is the ultimate example of a country where national income is much less than GDP, because of foreign corporations) makes to the analysis.

Start with the direct effects of a corporate tax cut. The JCT puts the revenue loss at $171 billion in 2027. Assume, as is roughly the consensus, that 1/3 of this accrues to workers, but two-thirds to capital. Steve Rosenthal says that about 35 percent of this gain, in turn, accrues to foreign investors. So right there we have about $40 billion in additional investment income paid to foreigners.

Then there are the effects of the trade deficit. I can’t figure out TPC’s estimate there, but typical numbers from other modelers say that we’re looking at around $80 billion a year, or $800 billion in increased net foreign liabilities. BEA numbers say that foreign investors in the US earn on average about 2%, U.S. investors abroad around 3%. So this suggests an average return of maybe 2.5%? My guess is that this is low, because the changes would be focused on direct investment, which earns higher returns. But let’s go with it: in that case we’re talking about another $20 billion in investment income paid to foreigners.

Put it together, and for 2027 I get $60 billion in reduced GNI relative to GDP. Potential GDP is supposed to be about $28 trillion by then, so we’re talking a bit over 0.2% of GDP.

Remember, TPC estimates the extra growth in GDP at 0.3%. So according to the back of my envelope, leprechaun economics — extra payments to foreigners — basically wipe out all of that growth.

And let me say that I am not entirely clear, given this result, why there should be any dynamic revenue gains. Given how scrupulous TPC normally is, they probably have an answer. But as far as I can see there’s no obvious reason to believe that dynamic scoring helps the tax cut case at all, not even a little bit.

I’m sure that people can improve on my back-of-the-envelope here. But for now, it looks to me as if, properly counted, these tax cuts would do nothing for growth.