Trump team: Corporate tax cuts will lift workers’ wages

Critics: Report is based on ‘fake math,’ plan will only benefit rich

WASHINGTON — President Donald Trump’s top economist said Monday that a corporate tax cut being pushed by Republicans would increase a typical household’s income by $3,000 to $7,000 a year, highlighting a primary argument the administration will make in drafting and selling its tax plan.

A report by the White House Council of Economic Advisers is the first official calculation of the tax framework’s impact and its focus on cutting corporate rates underscores how central that effort is to the administration’s overall plan. Trump and Republican lawmakers have been selling their framework as a middle-class tax cut, saying the plan will put money back in workers’ pockets, including by lowering the corporate rate to 20 percent from 35 percent.

The Council of Economic Advisers report argues that high corporate taxes hurt workers in the form of smaller paychecks and that worker incomes rise sharply when corporate

rates fall. It points to “the deteriorating relationship between wages of American workers and U.S. corporate profits” and says, essentially, that high corporate taxes have encouraged companies to shift capital abroad rather than flow profits to workers through pay increases.

Its conclusions drew swift condemnation from many Democrats and liberal economists, who accused the administration of “cherry-picking” economic evidence to sweeten Trump’s pitch to American workers.

Sen. Chuck Schumer of New York, who leads Senate Democrats, called the report “fake math” and said history showed tax cuts in the mold of the Republican plan “benefit the wealthy and the powerful to the exclusion of the middle class.”

Other research has cast doubt on the theory that businesses would pass tax savings on to their workers in the form of higher wages. A 2012 Treasury Department study, which the department recently removed from its website, found that less than a fifth of the corporate tax falls on workers. A Congressional Research Service report last month concluded that the effects of corporate taxes fell largely on high-income Americans, not average workers.

The president, signaling how heavily the administration will lean on the argument that a corporate tax cut will help workers, said in a speech in Pennsylvania last week that the proposal would most “likely give the typical American household a $4,000 pay raise.”

The council is led by Kevin Hassett, an economist whose previous academic work has argued that high corporate tax rates hurt workers.

The report does not attempt to analyze the full Republican proposal, which still lacks many key details, including the individual income ranges for tax brackets, the rules to qualify for certain lower business tax rates and possible methods to prevent multinational corporations from avoiding

taxes by channeling profits to ultra-low-tax countries.

Instead, it focuses on one detail that Trump has insisted is not negotiable: the reduction in the top corporate income tax rate.

The report draws heavily on several economic studies that find results similar to Hassett’s, including that the incidence of corporate taxation falls mainly on workers, meaning they have much to gain if such rates are cut. One of the studies it cites uses international data to estimate the magnitude of wage growth countries could initiate by cutting corporate rates; another performs a similar estimate using statelevel data.

The council’s report concludes that if the corporate rate were cut to 20 percent, the median American household would earn $3,000 to $7,000 more than it otherwise would have. The median household earns just under $60,000 a year.

Hassett said in a conference call with reporters that those gains could be even larger than the calculations suggested, “because America’s broken corporate tax system creates incentives for firms to hold their profits outside our borders.”

Another report issued Monday from three economists at Boston

University used an economic model to predict similarly large income gains from the Republican tax framework, though it warned that the plan would likely widen income inequality. That model assumes that the burden of corporate taxes falls almost entirely on workers.

Liberal researchers accused the Trump administration Monday of ignoring studies that showed few benefits from corporate tax

cuts for average workers and of instead relying on research that supported a politically desirable result. Seth Hanlon, a senior fellow at the Center for American Progress think tank and a former

economic adviser to President Barack Obama, said Hassett had “cherry-picked” studies outside the “mainstream consensus” on the effects of corporate taxation on wages.