By slashing corporate tax rates, the Trump administration said Monday, the average U.S. household will get an estimated $4,000 more a year.
This stunning 5 percent increase was met with skepticism from tax experts and Democratic lawmakers who said the math was flawed. Spread across every U.S. household, the White House analysis claims it would generate “conservatively” an income jump totaling $504 billion, or about $200 billion more than the revenues currently generated by the corporate income tax.
With this new report, the White House is making a populist argument for its proposal to cut the 35 percent corporate tax rate to 20 percent. Trump has pitched his tax plan as supporting the middle class even though the details point to major companies and the wealthy as the biggest winners. Polls suggest that voters generally frown upon the idea of cutting taxes for businesses — essentially rewarding these firms for avoiding taxes by exploiting loopholes and keeping profits overseas.
“President Trump complains about fake news — this fake math is as bad as any of the so-called fake news he has complained about,” said Senate Minority Leader Chuck Schumer, a New York Democrat. “This deliberate manipulation of numbers and facts could lead to messing up the good economy the president inherited.”
The analysis by Kevin Hassett, chairman of the White House Council of Economic Advisers, said that the considerably lower rate would spur more investment by companies, which would then boost hiring and worker productivity. The average income gains from the reduced rate would range from $4,000 to as high as $9,000, the administration said. Those figures, however, rely on research arguing that workers — rather than investors — would primarily benefit from the lower corporate rates.
“I would expect to see an immediate jump in wage growth,” Hassett said in a phone call with reporters, explaining that the salary gains would also come in part from companies bringing back profits held overseas to avoid the relatively high U.S. tax rates.
Separate studies, including a 2012 Treasury Department analysis, found that the vast majority of any savings would go to investors, making it unlikely to push up wages as much as the administration has argued. The administration removed the 2012 analysis from the Treasury Department’s website after releasing its tax framework last month with Republican congressional leaders.
Outside economists said the income growth projected by Hassett appears to assume that workers appear to bear more than 100 percent of the burden of U.S. corporate taxes — a mathematical impossibility.
Jason Furman, Hassett’s predecessor under President Barack Obama, said on Twitter that the numbers in the report suggest that workers bear 250 percent of the costs.
Mark Mazur, director of the non-partisan Tax Policy Center, called the estimated income gains “absurd.”
“You’d have to have a tsunami of corporate capital coming into the United States — we’ve never seen that,” Mazur said.
Stocks surged after Trump’s election last year on the prospect of business tax cuts, but wage gains have been relatively tepid. The higher stock prices touted by Trump are a possible sign that investors would reap most of the benefits from lower corporate rates, although Hassett said he expects an increase in wages if the tax overhaul is passed.
For individuals and families, the Trump plan would reduce the number of tax brackets to three from seven and double the standard deduction. But it would also remove the personal exemption and possibly much of the deduction for state and local taxes — changes that could possibly increase taxes for many families. A preliminary analysis by the Tax Policy Center estimated that the proposal would cut business taxes by $2.65 trillion over a decade while increasing the tax burden on families and individuals by $471 billion.
Hassett criticized those findings in a speech this month as a “fiction” that is “scientifically indefensible” because critical details of the proposal remain unknown. But Hassett said enough details are now known about the plan to support his conclusion that it would lead to income gains and stronger economic growth.