Lowering the corporate tax rate and reforming corporate taxes will raise earnings for the American people
Trump will claim corporate tax reform will boost family earnings by $4,000
by Joseph Lawler
President Trump is set to claim that the Republican plan to reform the corporate tax code will increase the typical family’s earnings by $4,000, a statement that could make it easier for the GOP to sell the plan, but one that is also likely to be scrutinized by opponents.
“My Council of Economic Advisers estimates this change alone would likely give the typical American household a $4,000 pay raise,” Trump will say in a speech to be delivered in Harrisburg, Penn. on Wednesday, according to a senior administration official.
The claim is not that the typical family will see a $4,000 tax cut. In fact, it remains an open question whether all families will see direct tax cuts, and Democrats have charged that the GOP plan will raise taxes on some middle-class households.
Instead, Trump will argue the benefits of lowering the corporate tax rate and reforming corporate taxes will raise earnings as companies pass tax cuts on to workers and the economy grows. Trump says families will share in the growth that is generated by the reform.
The analysis on which Trump will base his comments has not yet been released. The Council of Economic Advisers said it would release a white paper that includes the finding “soon.”
The council’s newly installed chairman, conservative economist Kevin Hassett, is known for his research on corporate taxes finding that most of the burden of taxes is borne by workers, rather than by owners. Many mainstream analyses, including ones produced in years past by the Treasury, have found the opposite — that owners bear most of the corporate tax burden.
Last week, in his first public remarks as chairman, Hassett suggested at an event at the Tax Policy Center that the median household would receive a boost in income of $4,000 over the next eight years if companies brought back all their foreign profits to the U.S., rather than leaving the majority of such earnings overseas as they do today.
Hassett also claimed that lowering the corporate tax rate from 35 percent to 20 percent, as called for in the GOP plan, would boost median incomes by $7,000.
“We know from several studies that high corporate tax rates serve to depress the wages of workers over the long-run, through a combination of disincentives to bring profits home to invest, and a reduced impetus for domestic investment in general,” he said.
Hassett isn’t the first Republican to claim big economic benefits for middle-class families from tax reform. House Republicans frequently claimed over the past year that their 2016 campaign tax reform plan would boost paychecks by thousands of dollars. In making that claim, they cited an analysis from the Tax Foundation that found that families in the middle fifth of the income distribution would get a after-tax boost of $3,000 from the GOP plan, even though they would only see a direct tax cut of about $70.
The model underlying that analysis, however, is just one of several currently used by outside groups or by Congress’ own in-house tax experts. Democrats generally challenge the premise that supply-side tax reforms increase growth — especially ones that prove to be net tax cuts, which increase the debt and raise the cost of borrowing.
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