A new analysis released by chairman of the White House Council of Economic Advisers, Kevin Hassett, has revealed that President Trump’s initiative to lower the corporate tax rate will boost the average American family’s income by $4,000 to $9,000 each year.
Hassett, who earned his PhD in economics from the University of Pennsylvania, is one of the biggest proponents of the idea that tax cuts promote growth and higher wages. This concept is known as “supply-side economics,” and has been embraced by many of the most influential Republican lawmakers and officials, including President Ronald Reagan.
Hassett published a study on Trump’s economic initiatives, focusing on the president’s proposed corporate tax cut. His findings indicate that the cut would provide a massive boost to the household income, based on his estimate of the relationship between tax rates and wages. The study provides academic weight to the pro-worker basis of the GOP tax reform plan, specifically a reduction in the corporate tax rate from todays 35% to 20%. Whereas Democrats have predictably criticized the package, arguing that it would provide benefits to businesses but not to families, Hassett’s paper provides Republicans with an academic basis to challenge and disprove these leftist attacks.
“I would expect to see an immediate jump in wage growth,” said the head of President Trump’s economic council.
At the heart of Hassett’s argument is the observation that, in recent years, countries with low corporate tax rates have seen higher wage gains than countries with high corporate tax rates.
Wage growth has been disappointing since the Great Recession, rising about 2 percent a year, which is well below the nation’s historic average of 3.5 percent to 4 percent a year. Hassett estimates that wage growth will skyrocket to more than 5 percent a year after the tax plan is enacted, although it may take a few years to fully kick in. Trump and GOP lawmakers have argued that lowering the rate would make U.S. businesses more competitive with those from other countries as well.
Hassett calculates the 15% corporate rate cut could increase average household incomes from $83,143 in 2016 to between $87,520 and $92,222. Median household income — meaning earnings for more of a typical household — would rise from $59,039 to between $62,147 and $65,486. In an interview last week, Hassett mused the income gains could kick in quickly as businesses brought back the trillions in foreign earners they currently have overseas.
Critics say that the White House is greatly exaggerating how much working people will benefit, asserting that, instead, corporations will likely just pay out those earnings to shareholders. Hassett, however, reckons that much of the benefit of corporate tax cuts would accrue to workers, not corporate owners.
“Put simply, capital deepening, which brings additional returns to the owners of capital, brings substantial returns to workers as well,” the Council of Economic Advisers concluded.