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Trump’s Top Economist Says Corporate Tax Cuts Will Lift Workers’ Wages Trump’s Top Economist Says Corporate Tax Cuts Will Lift Workers’ Wages
(about 4 hours later)
WASHINGTON — President Trump’s top economist argued in a report issued on Monday that corporate tax cuts being pushed by Republicans would increase a typical household’s income by $3,000 to $7,000 a year, highlighting a primary argument the administration will make in drafting and selling its tax plan.WASHINGTON — President Trump’s top economist argued in a report issued on Monday that corporate tax cuts being pushed by Republicans would increase a typical household’s income by $3,000 to $7,000 a year, highlighting a primary argument the administration will make in drafting and selling its tax plan.
The report is the first official calculation of the tax plan’s impact and its focus underlines how central a corporate tax cut is to the administration’s overall plan. Mr. Trump and Republican lawmakers have been selling their tax framework as a middle-class tax cut, saying the plan will put money back in workers’ pockets, including by lowering the corporate tax rate to 20 percent from 35 percent. The report is the first official calculation of the tax plan’s impact and its focus underscores how central a corporate tax cut is to the administration’s overall plan. Mr. Trump and Republican lawmakers have been selling their tax framework as a middle-class tax cut, saying the plan will put money back in workers’ pockets, including by lowering the corporate tax rate to 20 percent from 35 percent.
The report, by the White House Council of Economic Advisers, argues that high corporate taxes hurt workers in the form of smaller paychecks and that worker incomes rise sharply when corporate tax rates fall. The report, by the White House Council of Economic Advisers, argues that high corporate taxes hurt workers in the form of smaller paychecks and that worker incomes rise sharply when corporate tax rates fall. It points to “the deteriorating relationship between wages of American workers and U.S. corporate profits” and says, essentially, that high corporate taxes have encouraged companies to shift capital abroad rather than flow profits to workers through pay increases.
The report drew swift condemnation from many Democrats and liberal economists, who accused the administration of “cherry-picking” economic evidence to sweeten Mr. Trump’s pitch to American workers. Its conclusions drew swift condemnation from many Democrats and liberal economists, who accused the administration of “cherry-picking” economic evidence to sweeten Mr. Trump’s pitch to American workers.
Senator Charles Schumer, a Democrat of New York who is the Senate minority leader, called the report “fake math” and said history showed tax cuts in the mold of the Republican plan “benefit the wealthy and the powerful to the exclusion of the middle class.” Senator Chuck Schumer, the New Yorker who leads Senate Democrats, called the report “fake math” and said history showed tax cuts in the mold of the Republican plan “benefit the wealthy and the powerful to the exclusion of the middle class.”
Other research has cast doubt on the theory that businesses would pass tax savings on to their workers in the form of higher wages. A 2012 Treasury Department study, which the department recently removed from its website, found that less than a fifth of the corporate tax falls on workers. A Congressional Research Service report last month concluded that the effects of corporate taxes fell largely on high-income Americans, not average workers.Other research has cast doubt on the theory that businesses would pass tax savings on to their workers in the form of higher wages. A 2012 Treasury Department study, which the department recently removed from its website, found that less than a fifth of the corporate tax falls on workers. A Congressional Research Service report last month concluded that the effects of corporate taxes fell largely on high-income Americans, not average workers.
The president, signaling how heavily the administration will lean on the Council of Economic Advisers report, said in a speech in Pennsylvania last week that the proposal would most “likely give the typical American household a $4,000 pay raise.”The president, signaling how heavily the administration will lean on the Council of Economic Advisers report, said in a speech in Pennsylvania last week that the proposal would most “likely give the typical American household a $4,000 pay raise.”
The council is led by Kevin Hassett, an economist whose academic work has argued that high corporate tax rates hurt workers, and that when those tax rates fall, worker incomes rise sharply. The council is led by Kevin Hassett, an economist whose previous academic work has argued that high corporate tax rates hurt workers.
The report does not try to analyze the full Republican proposal, which still lacks key details on the income ranges for tax brackets, the rules to qualify for certain lower business tax rates and how to prevent multinational corporations from avoiding taxes by channeling profits to ultra-low-tax countries. The report does not attempt to analyze the full Republican proposal, which still lacks many key details, including the individual income ranges for tax brackets, the rules to qualify for certain lower business tax rates and how to prevent multinational corporations from avoiding taxes by channeling profits to ultra-low-tax countries.
Instead, it focuses on one detail that Mr. Trump has insisted is not negotiable: the reduction in the top corporate income tax rate.Instead, it focuses on one detail that Mr. Trump has insisted is not negotiable: the reduction in the top corporate income tax rate.
The report draws heavily on several economic studies that find similar results to Mr. Hassett’s: that the so-called incidence of corporate taxation falls mainly on workers, meaning they have much to gain if such rates are cut. It concludes that if the corporate rate were cut to 20 percent, the median American household, which earns just under $60,000 a year, would earn $3,000 to $7,000 more than it otherwise would have. The report draws heavily on several economic studies that find similar results to Mr. Hassett’s: that the so-called incidence of corporate taxation falls mainly on workers, meaning they have much to gain if such rates are cut. One of the studies it cites uses international data to estimate the magnitude of wage growth countries could trigger by cutting corporate rates; another performs a similar estimate using state-level data.
The council’s report concludes that if the corporate rate were cut to 20 percent, the median American household, which earns just under $60,000 a year, would earn $3,000 to $7,000 more than it otherwise would have.
Mr. Hassett said in a conference call with reporters that those gains could be even larger than the calculations suggested, “because America’s broken corporate tax system creates incentives for firms to hold their profits outside our borders.”Mr. Hassett said in a conference call with reporters that those gains could be even larger than the calculations suggested, “because America’s broken corporate tax system creates incentives for firms to hold their profits outside our borders.”
Another report issued on Monday from three economists at Boston University used an economic model to predict similarly large income gains from the Republican tax framework, though it warned the plan would likely widen income inequality. That model assumes that the burden of corporate taxes falls almost entirely on workers.
A prominent conservative economist, Douglas Holtz-Eakin, the president of the American Action Forum in Washington and a former director of the Congressional Budget Office, said on Monday that the council’s projections represented “a reasonable, back-of-the envelope calculation,” drawn from empirical research.A prominent conservative economist, Douglas Holtz-Eakin, the president of the American Action Forum in Washington and a former director of the Congressional Budget Office, said on Monday that the council’s projections represented “a reasonable, back-of-the envelope calculation,” drawn from empirical research.
More important, he said, is the argument that the numbers support: that corporate tax cuts will drive economic growth and deliver income gains across the country. The gains to workers from a corporate rate cut, he contended, would matter far more to their standards of living than the Republican plan’s proposed changes to the individual income tax code, such as doubling the size of the standard deduction. He said gains to workers from a corporate rate cut would have a far greater impact on their living standards than the framework’s proposed changes to the individual income tax code, such as doubling the size of the standard deduction.
“The most important things for the middle class are not on the piece of paper,” Mr. Holtz-Eakin said, referring to the details of the individual income tax plan. “Do real wages rise, do standards of living increase? The specifics of the plan — the bigger standard deduction, etc. — are small potatoes compared to that. There’s a bigger game here, and the C.E.A. report is a reminder of that bigger game.”“The most important things for the middle class are not on the piece of paper,” Mr. Holtz-Eakin said, referring to the details of the individual income tax plan. “Do real wages rise, do standards of living increase? The specifics of the plan — the bigger standard deduction, etc. — are small potatoes compared to that. There’s a bigger game here, and the C.E.A. report is a reminder of that bigger game.”
Liberal researchers accused the Trump administration on Monday of ignoring studies that showed few benefits from corporate tax cuts for average workers and of instead relying on research that supported a politically desirable result. Seth Hanlon, a senior fellow at the Center for American Progress think tank and a former economic adviser to President Barack Obama, said Mr. Hassett had “cherry-picked” studies outside the “mainstream consensus” on the effects of corporate taxation on wages. Liberal researchers accused the Trump administration on Monday of ignoring studies that showed few benefits from corporate tax cuts for average workers and relying on research that supported a politically desirable result. Seth Hanlon, a senior fellow at the Center for American Progress think tank and a former economic adviser to President Barack Obama, said Mr. Hassett had “cherry-picked” studies on the effects of corporate taxation on wages.
“On some level, we’ve seen this movie before,” Mr. Hanlon said. “We’ve seen promises that tax cuts for businesses or ‘job creators’ will trickle down. And they continue to fail.” Jason Furman, a professor at the Harvard Kennedy School and a former Council of Economic Advisers chairman in the Obama administration, called Mr. Hassett’s findings “implausible” and noted they were rooted in studies that had not been published in major academic journals.
The administration contends that American tax policies have depressed wages for decades. The report begins with a declaration that “wage growth in America has stagnated,” even as corporate profits have soared, because “the relationship between corporate profits and broke down in the late 1980s.” “This lies outside the mainstream of economists,” he said.
The report asserts that reducing the corporate rate will repair that relationship, encouraging companies to invest heavily in domestic machinery, computers and other equipment that will help workers produce more with the same amount of time on the job. That productivity increase, Mr. Hassett said, would lead companies to pay their workers more.