Chairman of the Trump Administration’s Council of Economic Advisors, Kevin Hassett, explains that coming tax reform will create sustained 5% year-over-year GDP growth. President Trump’s Unified Tax Plan calls for a slashing of America’s absurdly high corporate tax rate.
The Economic Council has just release their new report, which uses three economic models to assess all possible impacts of the coming tax reform. It found that cutting the corporate tax rate may even cause the economy to grow faster than 5% due to the plan’s individual income tax reforms and the reforms to pass-through business taxes.
“We can be highly confident that the level of GDP will be 5 percent higher 10 years from now,” Hassett said in his report. “We would ramp up to that with steady growth of about 0.5 percent per year higher just from the corporate tax side. So obviously the president’s plan is already having a positive effect on economic growth.”
In addition, the report also projects that the wage and salary income would increase by roughly $4,000, due to the business side of the plan. Reforms to the individual income tax could also increase this number further.
“We find a very strong agreement across the different classes of models that the average American household yearly earning will conservatively go up by about $4,000 if the corporate side of this proposal becomes law,” Hassett said. “Once it hits that $4,000 it will continue to provide yearly increases from there and wages and incomes would grow.”
Hassett says this is an urgent issue and needs immediate attention since there has been a disconnection between what happens to America’s firms and their profits and what happens to America’s workers.
“While profits have been soaring, their wages have been not,” Hassett commented. “Now one of the reasons wages might not go up that economists can tell you is that workers are not getting enough capital to provide them with productivity over time.”
“Ever since the Second World War, capital deepening provided almost a percent a year on productivity growth and wage growth,” he added. “But capital deepening and the amount of purchases on machines that firms do to give workers more stuff to work with declined so much in the second half of the Obama administration that it went negative in a sustained way.”
Hassett says that the solution to this problem is by fixing the tax codes. “Right now we’ve got a corporate tax code that rewards firms for locating their capital overseas and not putting their factories here. So that’s exactly what President Trump wants to do.”
“Our report is only studying the corporate side of it, but the corporate side of it will lure capital back to the U.S., increase the amount of capital being paid there to support wage growth and move wages back to about $4,000 higher than baseline,” Hassett concluded.