Corporate tax cut would boost U.S. wages by at least $4,000 a year: White House
Cutting the U.S. corporate tax rate to 20 per cent, as President Donald Trump has proposed, would increase average household income by at least $4,000 a year, according to estimates in a White House study.
The study by Trump’s Council of Economic Advisers, released on Monday, says that kind of wage growth would take several years to go into effect, but it could eventually reach $9,000 a year. Other economists have previously questioned how beneficial such cuts would be for middle-income families.
The projection is based on the assumption that companies will be more inclined to invest in the U.S. with lower taxes, increasing the demand for workers and driving up wages. But some economists suggest that corporate executives would be more inclined to use a tax windfall to increase shareholders’ dividends, or to invest in automation that could limit the need for more workers in some industries.
Trump and congressional leaders last month proposed a framework for tax legislation that would cut the corporate income tax rate to 20 per cent from 35 per cent. The plan would also slash the tax rate on income earned by the most lucrative pass-through businesses, such as partnerships and limited liability companies. And it would condense the existing seven individual income tax brackets to three or four — leaving it up to congressional tax writers to set the top marginal rate.
Facing criticism from some independent analyses of the plan’s effect on middle-class workers, the White House has been trying to portray its benefits for average U.S. households. Trump has already used the $4,000 figure; he cited it in a speech last week in Pennsylvania.
Despite improvements in the economy in recent years, wage growth for the middle class has lagged behind corporate profit growth. Kevin Hassett, the head of Trump’s CEA, blamed that disconnect on the relatively high U.S. corporate tax rate.
“Workers have paid a big price,” Hassett said Sunday. “Productivity and wages have stagnated as corporate profits have soared; there has been a striking disconnect.”
In arriving at its estimates, the CEA sought to determine how average household income would have changed in 2016 if a 20-percent corporate income tax had
been enacted in 2008, and phased in over time. It found that an average U.S. household making $83,143 in 2016 would have earned more than $4,000 in additional annual income. For the median household income of $59,039, the increase would be between $3,000 and $7,000 over the same period, according to the report.
Trump and Senate Majority Leader Mitch McConnell appeared to give themselves some breathing room on their goal of completing a tax overhaul before year’s end in remarks Monday that emphasized the difficulty of passing major legislation.
Both men affirmed their aim of delivering major tax legislation by December during a Rose Garden news conference. But in response to a question, Trump noted that the last major tax overhaul, adopted in 1986, came midway through president Ronald Reagan’s second term. “I’ve been here a little more than nine months,” he said.
McConnell called completion of a tax bill in 2017 “the goal.” But he said the Affordable Care Act and the Dodd-Frank Act were signed in the second year of former president Barack Obama’s first term.
Trump’s top economic adviser Gary Cohn said earlier Monday that the president has told him a tax revamp must happen in 2017, and Congress will have to ensure it’s completed. “You’re going to start seeing rhetoric out of the president that this must get done this year,” he said at an American Bankers Association conference in Chicago.