Finance / Politics

Trump’s Corporate Tax Cut Will Boost Household Income $4k-$9k Yearly

money-wallet-incomeA 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.

Read the Full White House Analysis Here

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Earl
3 years ago

I am not aware of any credible evidence to support his basic assumption that additional corporate cash flow will be given out as wages. On the contrary, the job market determines wages.

Bob N
3 years ago

As long as the corporations use the money to raise the wages and benefits of the workers and not to send top executives on luxury cruises and lavish vacations like they did with the bailout money If they don’t use the money to better their workers lives or to put more Americans back to work than they should lose their tax break status and have to pay the higher tax rate again.

Tom Wilde
3 years ago

Face it, no matter how well this is framed or how well it is presented, the Communist Left will shriek “tax cuts for the wealthy!”.

Then of course, the Far Left Media will beat that to death with lie after lie and the ignorant Leftist stooges will all fall for it. Terrorist Antifa will mask up and take to the streets with nicely printed signs condemning any attempt to ease the burden on John Q. Public. The war of destruction will continue.

The bitter affects of the Jimmy Carter Common (Communist) Core doctrine is too well ingrained in American youth now for the simple truth to penetrate.

Good bad or indifferent it will be a near impossible sell.

Donald Tucker
3 years ago

So the savings would probably be passed on to stockholders instead of workers. I have news for you. Many of the workers are stockholders in the company they work for. Additionally most pension plans, both government and private or union, are invested in these same corporations and are in line to reap the benefits of lower corporate taxes. Most importantly, the global economy is competitive, and companies will go to where the tax rates are the best. Even if the reduced corporate tax rate doesn’t bring back jobs by the thousands or millions, it will stem the tide of jobs leaving the U.S., especially manufacturing. If the Liberals would quit trying to create a utopia and spending money on pie-in-the-sky schemes we could address some of the infrastructure and other real problems plaguing cities and states.

Lee McQuillen
3 years ago
Reply to  Donald Tucker

Wow! You’ve definitely been paying attention. Your post is written in language anyone can understand. Maybe the people pushing for tax reform should use it in selling it to the public! Nice going!

PaulE
3 years ago
Reply to  Donald Tucker

Exactly! Tax reform benefits people who don’t even know they are benefiting from it through the positive economic ripple effects that result by making a nation’s economy more competitive and attractive to business formation or expansion relative to the other countries of the world. Money is fungible and will naturally flow to whatever destination offers the most attractive economic environment. It’s a simple concept, but yet the vast majority of public doesn’t seem to have the ability to grasp it.

As for the so-called liberals, all they have to offer is their insane pie-in-the-sky schemes to remake our country into another failed socialist democracy. Which have no history of success on any level anywhere. Just varying degrees of pain and misery depending on how successful those country’s rulers have implemented the same playbook they all use. They are NOT in the problem solving business, but the problem creation business.

Wayne Peterkin
3 years ago

The tax cuts are intended and designed to promote a robust, growing economy which we have not had for years. The markets are not an indication that the economy is all that strong, only that investors anticipate that stronger economy if the government gets out of the way and does what’s right. Should the government fail to do that, the markets can come down just as easily as they went up. That robust economy, if we make it happen, creates jobs and increases wages. Always. In fact, tax revenues always go up as well, even though tax rates came down. The best way to encourage that robust economy is by tax reform and especially business tax rate reduction. We also need to reduce federal spending on just about everything except defense. This nation was founded on minimal federal government and maximum liberty for the individual. It’s the foundation, the very principles, our Constitution was developed upon and what made us great. That same liberty requires personal responsibility for ourselves and our families, not dependence on government handouts at taxpayer expense. The government should create the opportunity, hard work and personal responsibility must do the rest. BTW, do most people realize that the elimination of duplicative government programs along with waste fraud and abuse, all outlined annually by Citizens Against Government Waste’s annual report could actually balance the federal budget in one yer if every recommendation were followed?

PaulE
3 years ago

Be careful in framing your argument in terms of this tax cut leading directly to an increase in wages. While tax cuts are indeed pro-growth and overall very good for the economy, there is nothing so far in the tax cut legislation that mandates businesses take their tax savings and apply them directly to increasing workers’ wages. While the tax cut may indeed lead to higher household income for people, income and wages are NOT the same thing and there is NOTHING in the Ryan plan that forces a direct correlation.

The Democrats will harp on the term “wages” endlessly, because while Mr. Hassett’s conclusion of how tax cuts eventually lead to higher wage growth over time, the way he is using it here could be construed to be an immediate correlation that doesn’t exist in the legislation being worked on in Congress. Remember, the Democrats will seek to leverage any misuse of language to undermine anything proposed by the GOP. Their voter base is generally NOT financially or economically literate and would not understand the distinction of long-term economic effects Mr. Hassett is talking about. They would take him as literally promising that as soon as the tax cuts pass, their wages, for those they actually do work, would start to rise, That is of course NOT how it will work, but that is the message the Democrats will push as proof that the GOP lied. They will also push the narrative that if the tax cuts only benefit wages, which is the argument I’ve already started to hear from some in the mainstream media, what about folks that don’t work? See where is nonsensical line of twisted logic is going with the Democrats? Now the democrats will try to position tax cuts as being unfair, because they only benefit people who work. Another whole new divisive angle to exploit for the Democrats.

I have seen a number of GOP Congressional lawmakers making this same claim over the last few days and when asked directly how the corporate tax cut will lead to higher wages, they can’t answer. After all, they are merely repeating talking points given to them by their staffs. They instead just repeat that we have the highest corporate taxes in the world and are at an extreme disadvantage. All of which is true, but does not ask the question the Democrats have already told the mainstream media to focus on. That answer the Congressional GOP folks are coming back with sound like deflection, because it is indeed deflection. That is not answering the question posed, but avoiding a response by repeating a comment that has no bearing on the question asked. So if the Congressional GOP folks can’t articulate the long-term correlation of how you eventually get to wage growth, you know you have a problem.

Tax cuts are about allowing the public to keep more of THEIR money. So their incomes effectively rise, in the early stages by them retaining more of their income and spending or investing it better on their own behalf. That is what drives economic growth and job creation. Private spending and investment. Over time, increased economic activity drives job creation as businesses open or expand to fill an under-served need in the economy. That in turn creates profits and wage growth, which allow for further new businesses to be formed and existing businesses to expand. That’s the economic cycle.

Chris
3 years ago
Reply to  PaulE

Unfortunately even if the Congress person understands all that, how do they say it in such a way that the media doesn’t immediately scream “Trickle down economics? That doesn’t work!”. The media won’t give a politician half the time it took for you to explain it. They’ll find some soundbite to exploit to push their agenda.

Hen3ry
3 years ago
Reply to  Chris

That is the same trickle down capitalist economy that funds the advertising that pays for the media to function in the first place

Many of them richly enjoying the benefits of capitalism
Receiving huge salaries and living fat sheltered luxury lives.

How many of them are in the top 10 percent income bracket and are trying everything possible to reduce their taxes while droning on about tax cuts for the rich.

Chris
3 years ago
Reply to  Hen3ry

I totally agree, all I asked was how to word its description in such a way that even the media’s hypocrisy and soundbite mentality can’t distort it — that’s the challenge GOP Congressional members face (as do the rest of us). Remember a lot of their audience are with them in their hypocrisy, attacking the very thing that makes their lives comfortable.

Kim
3 years ago
Reply to  Chris

Hi Chris,
About 20 years ago, I had a customer who was trying to decide whether or not to buy a product I was selling at a fall festival. It wasn’t food, shelter, or clothing, but it was pretty, and unique, and the customer thought it would make his wife happy. He said he didn’t really need it and asked me why he should buy it. I thought quickly, and ruled out “trickle down economics” because of the blue state I lived in, and instead offered that the sale “would lubricate the economy”. That did the trick, and I was able to add another $40 to the cash box. He was glad to learn another perspective–that of the small business person–and I’ll wager that the phrase stuck with him as it did with me!

PaulE
3 years ago
Reply to  Chris

The media will scream “Trickle down economics” and “Tax cuts for the rich” no matter what any GOP member of Congress says. That is a given. It is the conditioned response they have been taught to repeat to any GOP suggested tax reform. After all, that is their role as the propaganda arm of the Democrat Party. To defend the progressive policies and agenda of the Democrat Party by disparaging any and all opposing policies and groups that stand in the Democrats’ way. Rabid attacks from the media for anything proposed by the GOP is a given, that is never going to end.

The point however is to NOT provide the media and the Democrats with more means to ramp up that criticism by the GOP by using poor language to describe the benefits of tax reform. Promising $4K to $9K in increased “wages” falls into that unforced errors category. The GOP has dozens of highly paid PR people on speed dial. They simply need to formulate a couple of sentence response for GOP members of Congress to repeat, that would get convey a compelling benefit to tax reform that doesn’t give the media and the Democrats a new talking point to feed their voter base.

Wayne Peterkin
3 years ago
Reply to  PaulE

A robust economy always results in more jobs and higher wages. Always. The business tax cuts are intended to help give us that robust economy and if it succeeds, nothing needs mandated. Such mandating is akin to price controls that have historically been disasters.

Hank
3 years ago
Reply to  PaulE

Exactly. The money could be spent on reducing debt, which is less likely with higher rates looming. It could be spent on expansion (with new salaries) or absorption (acquisitions, with eliminating redundancies). It could even lead to lower prices (turning the windfall over to consumers) and price wars (having a neutral or adverse effect on salaries). Salary increases might happen, incidentally. But if the cuts are going to be directed at big business rather than small business alike, a good portion of the tax saving can be spent on “lobbying”. We’ll see how it plays out, and for a new rash of finger-pointing when it doesn’t go as planned. Otherwise, I’m all for making it more attractive for companies to do business from within the US. The Federal Government can, and has, gotten too big, and needs to tighten the belt. It needs to stop overspending, and this is a step in the right direction.

Ivan Berry
3 years ago
Reply to  PaulE

Of the first fifteen comments and responses so far posted, most anything desired has been well covered. Everyone so far seems to understand.
However, the Fed has us in a near zero interest rate position that has gone on for so long that savings in money markets and other instruments that have supplied the where-with-all for business expansion and start-ups have been priced out of the market. How that could be answered is a puzzle since rising interests would increase the nation’s debt. This appears to be the “catch 22” that will take decades to resolve even if Congress were ever to become able and willing to even attend to it.

PaulE
3 years ago
Reply to  Ivan Berry

Hopefully the majority of seniors do not have the bulk of their liquid assets (near-term savings and longer term investment funds) tied up in pathetically low yielding bank money market or CD accounts. With the Fed’s action over the last decade and the real rate of inflation, both of those type of accounts would have been decimated.

As for the Fed raising interest rates and thus increasing the nation’s interest payments on the national debt, I know the FOMC is well aware of the situation they risk creating. They may be politically biased to support the Democrats, but they are not stupid. They realize the Democrats will turn on them in a heartbeat, if it becomes obvious the economy is being driven into the ground by actions by the Fed.

They also have the issue of the $4.5 trillion dollars of junk debt the Fed took on in 2009 that is dtill sitting on their balance sheet. With no real plan of how to dispose of that junk, without taking a huge loss and creating a histirically political embarrassment for Fed officials, the only real option they have boxed themselves into is to severely limit how much they can ever raise interest rates up to. Thus instead of shooting to return interest rates to “normal” levels of 4 to 6 percent, the best the Fed will be able to do, without causing massive financial issues for the country, is to raise rates back to 3 to 3.5 percent over a much longer time frame than most people are anticipating. Thus anyone counting on a return to getting 4 to 5 percent on either of the bank instruments you mentioned is a pipe dream.

As for Congress, aside from the semi-annual dog and pony hearings wih the Fed Chairman, with the usual set of staged questions, they are essentially hands off. They don’t want their finger prints on anything that might involve them taking ownership of an issue and thus making them accountable for something. Been that way for decades and I don’t foresee it changing any time soon.

Kim
3 years ago
Reply to  PaulE

On one hand, low interest rates have sent the stock market (artificially?) soaring, propping up corporations and plumping up accounts heavily invested in equities (with all the benefits and risks). On the other hand, the cost of borrowing has risen to prohibitive levels for those needing a source of funding. So, yes, Ivan and PaulE, this “Catch 22” is the dilemma facing Congress and the Fed. Would an economy that is succeeding beyond all imagination be enough to offset the losses felt on either side if the fulcrum shifts to higher interest rates? Will it (a roaring economy) be the panacea that finally sees the trajectory of the national debt reverse direction, and start putting a dent in the hundreds of billions of dollars spent annually on financing that debt? Maybe binding moderately higher interest rates with real spending cuts would do the trick.

PaulE
3 years ago
Reply to  Kim

Hi Kim,

I will try to answer your post in the most straight-forward way possible without writing a lengthy explanation covering all the points you touched on.

1) The Fed keeping interest rates artificially low for an extended period of time forced people to reallocate or rebalance their portfolios to the only areas that could still achieve acceptable rates of return on their capital over the long-term with minimal risk levels. That was both the equity and bond markets, both domestic and foreign. Since dividend paying stocks, convertible bonds and stocks, preferred stocks, high yield corporate debt and other market-based securities in the form of low cost mutual funds and ETF’s all deliver yields that have been consistently higher than what the lowly bank CD and the essentially zero interest rate savings accounts could produce for well over 15 years now, that is what most knowledgeable people did to compensate for the mismanagement of both the Fed and the Bush and Obama administrations over the last decade.

Are some stocks over-valued? Sure, but some stocks throughout history have always been over-valued and they are generally easy to spot, if your financially knowledgeable. They all share a set of common characteristics. Only the names of the companies that fall into this category change over time. That doesn’t mean you avoid all stocks and bonds or mutual funds or ETF’s. Just like any other major purchase you consider doing, you have to do your homework. You don’t buy a car by just strolling into any random car dealer and saying “I want to buy a car” and then buying the first car the sales rep shows you. Investments are no different. You educate yourself on the various options to achieve your goals or pay someone to do that on your behalf and ask for multiple ways to achieve that same objective. Either analyze potential investments yourself or, if you don’t have that skillset or comfort level to do it properly yourself, pay a licensed, fee based financial advisor (NOT a stock broker or one of those so-called financial advisors at your local bank that work on commission) to develop a broadly-based, diversified portfolio for you that both generates a decent, steady income stream and also minimizes market risk. Stocks like Tesla, Amazon, etc., that have never turned a profit and have no clear path to doing so in the near-term, are what people with no financial understanding just randomly buy based on what they hear on TV or from someone at a party. They are just setting themselves up for value trying to invest blindly that way. Those kind of stocks are so richly over-valued, relative to their peers and the market as a whole, that when the institutional momentum players on the Street move on, those stocks will crater. Those are examples of the type of stocks to avoid.

2) As I point out to Ivan, the Fed will NOT be able to return interest rates to the previous levels most seniors are hoping for the reasons I outlined above. Thus when people on TV or in the media refer to “higher interest rates”, those rates will be substantially lower than historical norms. Seniors should NOT expect to see the return of 5 to 6 percent CD rates anytime in the near or mid-term future. We pay over $800 billion a year in interest on our national debt at today’s current interest rate levels. Returning the 10 year government bond to 5 percent would effectively more than double that $800 billion dollar number. Which would not be sustainable without significantly higher taxes to cover the cost. So neither the Fed nor most members of Congress want to have to take responsibility for a massive, across the board tax hike. The Fed will NOT raise interest rates above the numbers I’ve outlined above.

3) Sustained economic growth of 3 to 4 percent over a multi-year period, from a true, across the board tax reform change, would significantly increase the revenue to the Treasury. History has proven this to be true when both JFK and Reagan enacted significant tax reforms. So yes, a roaring economy will indeed be a panacea providing the following:
a) Government spending DOES NOT increase to consume all the additional tax revenue flowing into the Treasury. Thus negating the net gain
from the stronger economy. That means yes, the people need to keep on eye on their so-called representatives in washing and stop them
when they start advocating for new, expensive and questionable ways to spend the additional money flowing into the Treasury. Think of
politicians as spendaholics. You can’t trust a spendaholic with a check card without monitoring them constantly to not max it out. Sorry, but
the American people have to actually do something to at least try and keep the spendaholics in Washington from blowing all the money. LBJ
largely blew through all the money from JFK’s tax cuts by creating the War on Poverty scam programs of the 60’s. Clinton and Bush largely
misspent the Reagan money on the CRA program, various social programs that produced no net success for the groups targeted, etc. So
yes, the government will consume whatever amount of money that flows into its coffers, if the people don’t push back hard to make sure it
is spent wisely.
b) At least 10 percent (ideally 20 percent) of the net new money flowing in the Treasury as a result of across the board tax cuts is dedicated to
paying down the national debt on an annual basis. This would quickly reduce both the amount of interest we pay each year, but also start to
make meaningful inroads into reducing the principle on the debt as well. This is something that should be written into the tax reform
legislation up-front. It would tie the hands of the current Congress and all future Congresses from simply wasting all the additional tax
revenue on yet another questionable or completely worthless federal program or initiative. That is why I why I want to see ALL the details of
the Ryan / Brady bill to see not only what they mean by “reform” for everyone, but also what, if any, restraints or dedicated spending that have
incorporated in the legislation.

Hope this wasn’t too long for you, but you asked multiple questions.

Kim
3 years ago
Reply to  PaulE

PaulE-
Yes, I follow. When are you running for office?
Much responsibility rests on the shoulders of our legislators, and I, too, am eager to see tax reform details…if only to see where the devil is.
After President Trump’s defeat of progressivism and knowing that the stock market frequently takes a nosedive during a new presidency–and didn’t–I decided it was time to invest more substantially (for me) in a low-cost total stock market fund. It has done well, and I continue to be optimistic that any improvement in the tax structure and possibly a resurrection in the health care debate will be reflected in further gains.
As for individual stocks–I have seen only 2 Teslas since they began strolling off the assembly line; I doubt if I would invest in something that has been propelled by hype rather than by real demand and sound financials.
Thanks for the tutorial. I hope Washington is acquainted with you, PaulE. Politicians need to hear these admonitions.

PaulE
3 years ago
Reply to  Kim

HI Kim,

I answered your questions, but AMAC decided to censor it. Sorry I cannot post a reply to you.

Kim
3 years ago
Reply to  PaulE

Thank goodness AMAC came to its senses and “approved” your next post.

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