Trump: Tax plan will help create a windfall
Says tapping overseas profits means bigger paychecks for workers
The White House is convinced that a special tax break it plans to offer to entice corporations to bring back some of the estimated $2.6 trillion in profits they have sheltered in overseas tax havens will raise paychecks for average American workers.
To hear the administration tell it, corporations will invest that money in expanding plants and research in the U.S., hiring workers and driving up wages.
President Trump flew to Middletown, Pa., on Wednesday to speak to a crowd — many of them truck drivers — about his plan to repatriate corporate profits to the U.S. and the economic benefits it will create for them.
“We’ll be bringing back probably very close to 100% of the money back into our country where it can be put to work, and jobs will be created,” Trump said. “My Council of Economic Advisers estimates that this change, along with a lower tax rate, will likely give the typical American household a $4,000 pay raise.”
For that to actually happen, corporations would have to decide to bring back their profits, invest them in ways that increase productivity and boost the wages of workers. And that is far from guaranteed, economists say.
Kevin Hassett, chairman of the council, told a forum in Washington on Wednesday corporate profit growth used to be closely associated with wage increases for workers, but it no longer is. He blamed tax havens such as Ireland, where the corporate rate is as low as 2.4%.
“It used to be that if profit growth went up 11%, then we’d expect wages to go up about 11%. But instead profit growth went up 11% and wages hardly budged,” Hassett said. “And the reason is the profits are in Ireland. And we bring the profits back here, then wage growth can go back to being what it should be, which is going up with profits.”
But some economists, while agreeing on the need to revamp the corporate tax code, say the
biggest beneficiaries of lower rates will be executives and shareholders. They say workers on average would only get 20 to 25 cents from each dollar in reduced tax and would benefit more from programs that lower the taxes they pay directly.
“Hassett’s logic is hopeful, wishful thinking as a way to sell a corporate tax cut that will mostly benefit those at top of the distribution, especially shareholders,” said Kimberly Clausing, an economist at Reed College who testified before the Senate Finance Committee on Oct. 3.
She said companies and investors have money to invest without needing to bring it back from overseas, but they are not doing that because they do not see opportunities to sell their products while middle-class incomes have stagnated.
Clausing rejected overseas tax havens as the cause, arguing that wages were also largely stagnant in other major economies around the globe.
Currently, U.S.-based multinational corporations are taxed on their global earnings, but they can defer tax on overseas earnings until they bring the money back.
But there is widespread agreement the tax code needs to be overhauled because companies have been able to keep money in foreign subsidiaries to avoid taxes that might otherwise be due.
A tax “framework” unveiled Sept. 27 by Trump and House and Senate Republican leaders calls for moving to a system that only taxes domestic profits, rather than global operations. It is vague about how it would deal with overseas profits, except to say there would be “rules to protect the U.S. tax base by taxing at a reduced rate and on a global basis the foreign profits of U.S. multinational corporations.”
Changing from a global corporate tax system and offering a one-time repatriation rate is part of a sweeping overhaul plan that would bring the top corporate rate down from 35% to 20% and reduce the seven current individual tax brackets to three or four.