Sunday night, White House Press Secretary Sarah Huckabee Sanders wrote a series of tweets touting a popular provision of the Trump-GOP tax plan that claims will give middle-class Americans a wage raise of four thousand dollars.
What would your family do w/ a $4,000 raise from the President’s tax cut plan? REPLY & I’ll share your family’s story in the press briefing
— Sarah Sanders (@PressSec) October 23, 2017
It’s a claim that received rousing applause from President Donald Trump’s audience of working class Pennsylvanians when he pitched his tax plan in Harrisburg earlier this month. According to Trump, cutting the estate tax, a tax measure that only a few thousand suit-wearing plutocrats will ever have to pay, will help the working class. Creating a special 25 percent rate for pass-through corporations that could effectively act as a loophole for the country’s wealthiest and well-connected will help the working class. And cutting taxes for corporations by 15 points will put an extra four thousand dollars in the pockets of every household, and help the working class.
That last point was first announced at the speech in Harrisburg and created by the administration’s Council of Economic Advisers (CEA), led by Kevin Hassett, a conservative economist and author of the book “DOW 36,000.” A paper released by the CEA argues that “reducing the statutory federal corporate tax rate from 35 to 20 percent would […] increase average household income in the United States by, very conservatively, $4,000 annually.” The paper goes on to suggest that four thousand is a “conservative” estimate. The amount of money awarded to the average household could be even higher, at an upwards of nine thousand dollars.
And while Hassett uses terms like “scientific” and “peer-reviewed” in the CEA paper to back up his claims, there is no peer-reviewed support for his central argument that slashing the corporate tax rate would raise wages by that much money. In fact, the Treasury Department took the extra step to remove a peer-reviewed study by the Office of Tax Analysis from its website, presumably because the study goes against what the Trump and the GOP are pedaling. The study found workers only bear (or benefit from) 18 percent of the cost of corporate taxes, compared to 82 percent for corporate owners. Additionally, the Congressional Budget Office (CBO) has concluded that workers only pay 25 percent of the corporate tax burden.
This appears to be consensus among a number of economists as well. Larry Summers, an economist and former U.S. Treasury Secretary under President Bill Clinton wrote a scathing take down of Hassett’s analysis, calling it “some combination of dishonest, incompetent and absurd.”
“Considering all this, if a Ph.D student submitted the CEA analysis as a term paper in public finance, I would be hard pressed to give it a passing grade,” wrote Summers. “I predict that as debates on tax policy unfold there will be many serious Republican economists who endorse parts of the Trump plan. I doubt that any will associate themselves with the CEA analysis.”
Hassett shot back at Summers during an appearance on CNBC saying, “It’s hard to respond to something where he says it’s an absurdity, but he doesn’t say why. And I can tell you he doesn’t say why because he doesn’t know why.”
Summers and others, however, have been very vocal on what they find absurd about the the CEA analysis. Howard Gleckman, a senior fellow at the Urban & Brookings Institute Tax Policy Center, wrote Hassett’s claim that workers benefit from a corporate tax cut is “at the far edge of the debate and is based on some sloppy and highly controversial methodology.”
According to Gleckman, there are four conditions that must be met in order for a corporate tax cut to increase wages: corporate tax rates must attract lots of new investment capital, corporations must use the money saved from tax cuts to purchase a lot of new equipment for their U.S. businesses, all that new investment must make U.S. workers much more productive, and the productivity growth must result in actual higher wages for workers.
Corporate tax cuts might have been beneficial to President Reagan’s economy, but for Trump, an economy rife with start-ups means corporations are more likely to invest in research and automation to stay competitive: two measures that do not generally promote job growth. As economist Paul Krugman wrote in the The New York Times, “why would [corporations] spend that extra money on hiring more workers or increasing their wages? Not, surely, out of the goodness of their hearts – and not in response to worker demands, because these days nobody cares what workers think.”
A 2011 Senate report, found many big tech companies actually shed jobs when enticed to repatriate their overseas cash holdings with a generous a tax holiday. According to the report, Hewlett Packard shed 8,000 US jobs and IBM shed 12,000.
The group likely to benefit the most from a corporate tax cut are not middle class Americans, but foreign stock investors, according to a recent piece from the Tax Policy Center’s Steve Rosenthal. These foreign investors own roughly 35 percent of U.S. corporate stock. Slashing the corporate tax rate to 20 percent would translate to a tax cut worth $70 billion dollars, three times the tax break that households in the middle income quintile would get under Trump’s tax plan.
By now, Americans are catching on to the lies that plague the Trump tax plan. A recent CBS News Nation Tracker poll found that nearly 58 percent of Americans believe it favors the rich, with only 18 percent believing they would help the middle class. This likely has to do with a report from the Tax Policy Center that found 80 percent of the tax cuts would go to the top one percent of Americans by 2027.
In all fairness, U.S. Treasury Secretary Steven Mnuchin said cutting taxes for the wealthy is “hard.” But it really isn’t. Trump and the GOP are cutting taxes for the wealthy because they can and have always wanted to.