Politics

Americans would see up to a $9,000 raise if US cuts corporate taxes, says Trump economic advisor

Key Points
  • American workers would get a pay raise if Republicans were able to reduce corporate taxes, argues Trump aide Kevin Hassett.
  • A new report from Hassett projects that reducing the corporate tax rate to 20 percent will result in a windfall for U.S. workers
  • Hassett said the cost of capital to companies will drop "by about 11 percent."
CEA's Kevin Hassett: Reform in other countries have boosted wages
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CEA's Kevin Hassett: Reform in other countries have boosted wages

American workers would get a pay raise if Republicans are able to reduce corporate taxes, argued the chairman of President Donald Trump's Council of Economic Advisers.

Cutting the U.S. corporate rate from 35 percent to 20 percent would provide companies with an incentive to keep their profits and operations in America, which would "increase the demand for workers here and drive up wages," Trump aide Kevin Hassett said Monday on CNBC's "Squawk Alley" after the White House released its first economic analysis of the GOP tax plan.

The new report from Hassett, out Monday morning, projects that reducing the corporate tax rate to 20 percent will result in a windfall for U.S. workers. He predicted average U.S. household income would increase at least $4,000 a year but could rise as much as $9,000 annually.

Last week, Larry Summers, a Treasury secretary under former President Bill Clinton and an ex-Obama economic advisor, called an early look at the analysis flawed. "The idea that this is going to produce a $4,000 increase in wages is, I think, an absurdity," Summers said, arguing that "record highs" in corporate profits show that companies don't need an incentive to increase wages.

In response to Summers, Hassett said, "It's hard to respond to something where he says it's an absurdity, but he doesn't say why. And I can tell you he doesn't say why because he doesn't know why."

Hassett also said that over the last eight years, under former President Barack Obama, there's been a "clear structural break" between corporate profits and wages. Corporate profits have risen more than 10 percent but real wage growth has risen a half a percent a year, he said.

U.S. corporations are paying workers abroad, "instead of here," Hassett said.

Regarding the effective tax rate, Hassett didn't say what it would be under the GOP plan. But he said the cost of capital will drop "by about 11 percent."

The Senate voted last month to approve Hassett as chairman of Trump's economic policy agency. Unlike under Obama, the position is not in the presidential Cabinet.

Before his appointment, Hassett was an economist at the American Enterprise Institute and senior economist at the Federal Reserve. He had also been a consultant to the Treasury Department and an advisor on presidential campaigns, including Republican Mitt Romney's unsuccessful run in 2012.