Paul Krugman explains this way better than I can. If you have time to read the whole thing, it's worth it. Here is a snippet:
The big argument for cutting corporate taxes has long been that if we don’t, corporations will move capital and jobs to lower-tax nations. And a casual look at the data suggests that this actually happens. U.S. corporations have a lot of overseas assets, and seem to favor countries with low tax rates.
What we’ve learned over the past 7 or 8 years, however, is that we’re mainly looking at accounting tricks rather than real capital flight to avoid taxes. There are multiple ways to make this point; in
my column on the subject I used “leprechaun economics,” the crazy swings in Irish growth that demonstrate the fictitious nature of corporate investment in Ireland’s economy. Another way to make the point is to note that most — most! — overseas profits reported by U.S. corporations are in tiny tax havens that can’t realistically be major profit centers. Here’s a chart from the Biden administration’s
fact sheet on its tax plan:
So one way to think about the failure of the Trump tax cut is that it didn’t reverse capital flight because the capital flight never happened in the first place. In effect, the U.S. government gave up hundreds of billions of dollars to fix a nonexistent problem.
Now the Biden administration wants to go after the real problem, which was always tax avoidance, not loss of jobs to foreigners. Will they manage to pass the necessary legislation? We’ll just have to wait and see.
