Gary Clyde Hufbauer (PIIE) and Zhiyao (Lucy) Lu (PIIE)
The Tax Cuts and Jobs Act of 2017 (TCJA) signed into law by President Donald Trump in December slashed the US corporate tax rate from 35 to 21 percent, starting January 1, 2018. The new law makes the United States a more attractive place for both US and foreign firms to do business. But for US multinational corporations (MNCs), the law is not exactly a New Year’s gift for their operations abroad. To pay for the massive corporate tax cut, estimated to cost $1,349 billion over a decade (link is external), the TCJA raises revenue in other areas, most importantly through new taxes on the foreign operations of MNCs. The combination of lower corporate taxes on US production and higher taxes on MNC production abroad reflects Trump’s “Made in America” campaign. But it limits the ability of MNCs to reap the gains to income and jobs derived from producing goods in other countries.