It’s a sad commentary on the state of affairs in America that we need to spend time debunking the Tax Foundation “model” of the effects of GOP tax cuts. But that model, with its extremely optimistic take on the growth and revenue effects of corporate tax cuts, is reportedly playing an important role in Senate discussions. So let’s talk some more about a point I’ve been trying to make: if you believe the TF analysis, you also have to believe that the Senate bill would lead to enormous trade deficits — and massive loss of manufacturing jobs.

TF provides very little detail on their model, which is itself a flashing red light: transparency is essential if you’re serious in this game. But if you read in a ways, there’s a table that tells us some of what we need to know:

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So they’re saying that in the long run — which they identify as a decade — the U.S capital stock will be 9.9% bigger than it would otherwise have been. Where do the savings for that increase in capital come from? Since there’s nothing in the bill that would increase domestic savings — on the contrary, the budget deficit would reduce national savings — they come from inflows of foreign capital.

How much inflow are we talking about? Currently, private fixed assets are approximately $43 trillion. A good baseline for private capital in 2027 would be to assume that it would grow with potential GDP. If so, in the absence of the Senate bill private capital would be $65 trillion in 2027.

So the Tax Foundation is claiming that the Senate bill would raise that by 9.9%, or $6.4 trillion.

Now, it’s just an accounting identity that current account + financial account = 0 — that is, $6.4 trillion in capital inflows means an extra $6.4 trillion in trade deficits over the next decade, more than $600 billion a year. Somehow, TF isn’t advertising that point, even though it’s an unavoidable conclusion from their analysis.

What would adding $600 billion per year to the trade deficit do? Mainly it would come from manufacturing, although part of that would reflect indirect losses in service industries that supply manufacturing. So let’s say 60% comes from reduced value added in U.S. manufacturing. That’s more than 20% of U.S. value-added in manufacturing. So the U.S. manufacturing sector would be around 20% smaller than it would have been otherwise.

How would this happen? Huge capital inflows would drive up the dollar, making U.S. manufacturing much less competitive.

And to a first approximation, it would also mean 20% fewer manufacturing jobs. Starting with 12.5 million current manufacturing workers, this means around 2.5 million fewer manufacturing jobs.

So let me say this clearly: if you believe the Tax Foundation analysis, you should also believe that the Senate bill would reduce manufacturing employment by around 2 1/2 million. Yes, jobs would be added in other sectors. But it’s not exactly what Trump has been promising, is it?

So why isn’t Tax Foundation talking about any of this? Actually, it’s pretty clear that they haven’t thought through the implications of their own model. Even though inflows of foreign capital are absolutely central to their case, they don’t appear to have considered at all what such inflows would involve.

So nobody should be taking these guys seriously.